Survey Reveals Confusion Over UK’s Flagship Help to Buy Scheme

This article by the Property Wire on November 5th, 2013 reveals the confusion about the benefits the Help to Buy scheme can give to first time buyers and home owners.

There is confusion over the UK government’s flagship Help to Buy mortgage guarantee scheme, with 43% of active first time buyers and other home movers confused about the benefit the scheme will give them.
 
A survey found that 31% of consumers who are looking to buy or move admit they do not know whether there is a difference between a 95% mortgage offered by a lender which has signed up to the scheme and a 95% mortgage from a lender which hasn’t.

Results from an independent consumer survey commissioned by the Building Societies Association (BSA), also shows that 18% of first time buyers and 17% of home movers believe that they can borrow more through this scheme than with a standard 95% and 12% of both first time buyers and home movers believe that their monthly repayments will be lower as a result of taking a Help to Buy mortgage guarantee loan.

One in 10 first time buyers but just 5% of home movers believe that the scheme will protect them if they cannot keep up their monthly payments while 12% of first time buyers and 6% of home movers say that Help to Buy mortgage guarantee will protect them if their house price falls.

But not one of these suppositions is true. The Help to Buy: Mortgage Guarantee Scheme has been designed to encourage more lenders to lend to borrowers with small deposits, increasing the availability of this type of loan. The mortgage that an individual consumer receives and the approval process they go through, are subject to the same lending rules whether a mortgage is inside the Help to Buy scheme or not.

In fact, when considering the affordability of the Help to buy: mortgage guarantee loan, until the new FCA rules related to the Mortgage Market Review come into force in April 2014 borrowers may well be subject to stricter requirements then they would be otherwise.
The introduction of and the publicity surrounding the two Help to Buy schemes has had a positive effect on consumer confidence and is likely to increase the overall volume of higher loan to value ratio lending, as some banks get back into this market, says the BSA.
 
Indeed, some lenders, particularly many building societies, have consistently offered loans requiring deposits of five or 10% and continue to do so outside the Help to Buy Scheme. So borrowers may find that they have a wider choice than they expected when shopping around for a low deposit loan.

‘It is unsurprising that some consumers are finding the Help to Buy Mortgage Guarantee Scheme difficult to get their heads round. The situation has been complicated by the launch of two very different schemes both called Help to Buy,’ said Paul Broadhead, BSA head of mortgage policy.

‘It is essential that providers offering loans under the scheme leave applicants in no doubt about the terms of their mortgage loan. I am particularly concerned that a reasonable minority of active first time buyers believe that they can borrow more than normal and that they are in some way protected yet neither assumption is true,’ he explained.

‘In fact a 95% mortgage through the Help to Buy mortgage guarantee is exactly the same as a standard 95% mortgage. It is vital that these myths are dispelled at application to prevent the possibility of consumers misunderstanding their mortgage loan and later feeling misled,’ he added.   

Article Source: http://www.propertywire.com/news/europe/uk-help-buy-confusion-201311058424.html

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Surveyor Report a Strong Month for UK Housing Market

This article by the Property Wire on October 24th, 2013 tells us the another strong month for the housing market in the UK with the volume of residential valuation going up compared to August, according to Connells Survey & Valuation.

The UK housing market experienced another strong month in September, with the volume of residential valuations 55% higher than August, according to chartered surveyors Connells Survey & Valuation.
 
The firm says in its latest report that strong growth in every sector of the market brought the total number of residential valuations conducted in September 2013 to 65% higher than the same point last year.

Particularly strong growth was recorded in the areas of buy to let and remortgages, which saw increased of 66% and 64% respectively month on month. This equates to much higher annual rates of growth, following a comparatively slow month in September 2012.

‘September has felt like a tipping point. A year since the first real effects of Funding for Lending, and five years since the collapse of Lehman Brothers, the financial world appears to be at the start of a much sunnier period. In just 12 months, the situation has shifted unrecognisably with last quarter’s economic growth likely to come in above 1%,’ said John Bagshaw, corporate services director of Connells Survey & Valuation.

‘However, many borrowers have been reliant on remortgaging to fuel a good proportion of their new found optimism. If not for record low product rates, many families could now be struggling to pay their mortgage while keeping the lights on at the same time. The real question now is how long these excellent new deals can last before the Bank of England decides to raise interest rates,’ he explained.

The report also shows that improvements in total levels of activity have also translated into more new buyers, as first time buyer activity in September grew by 52% compared to August. This leaves the number of valuations on behalf of first time buyers in September 54% higher than in the same month a year ago.

Meanwhile valuations further up the property chain, on behalf of existing home owners wishing to move, have grown almost as quickly as those for first time buyers, up 46% since August, bringing home moving activity to levels 52% ahead of September 2012.

‘Over the last year first time buyers have witnessed a reversal of fortunes. Every part of the home-buying industry is straining to keep up with a rejuvenated lending system. After five years of relative inactivity, the only danger now could be the pace of improvement,’ Bagshaw pointed out.

‘What’s certain is that more people are able to buy a home. And the next rungs on the property ladder are looking far more solid than even a few months ago,’ he added.

The data also shows that after a minor seasonal slow down in August, buy to let activity has bounced back strongly in September. The number of valuations on behalf of buy to let investors increased by 66% between August and September. This leaves buy to let activity up by 77% since September 2012.

‘September and early October are the very peak season of the rental market. But valuations for landlords hoping to expand their property portfolios now will only bring new homes onto the lettings market by around the end of the year. That’s why this is such positive news for the buy to let sector, because landlords are clearly confident that demand will still be there in several months,’ said Bagshaw.

‘Progress on the supply of rental homes will remain vital for tenants who haven’t yet joined the ranks of first time buyers. Luckily, there has never been a better time for landlords to expand portfolios, with buy to let mortgage rates the lowest they are likely to be for years,’ he added.

Article Source: http://www.propertywire.com/news/europe/uk-housing-market-surveyors-201310248383.html

Countryside Living Means Paying a Premium for Property in the UK

This article by Property Wire on October 22nd, 2013 reveals a new research country homes command a significant price premium compared to those in towns and cities.

Homes in the country command a significant price premium compared to properties in towns and cities across the UK, according to new research.
 
This premium ranges from £86,218 in the South East of England to £11,570 in the North East of the country, the research from the Halifax has found.

But when it comes to value rural house prices have underperformed those in urban areas since 2009. In the past four years, the average price of a home in the countryside has risen by 2% compared with an average 10% increase in urban areas.

While prices have risen more rapidly in urban areas in most regions since 2009, a key factor behind the bigger increase in urban house prices has been the relative strength of prices in Greater London.  Excluding London, urban prices have risen by 6%.

The research report says that the recent outperformance of house prices in urban areas may also partly reflect the overall increase in the number of first time buyers since 2010 as they represent a larger proportion of the market in urban areas.

Over the same period, there has been a modest decline in the number of those moving home; a group that is more important in rural property markets.

‘There is a significant premium on property in the countryside across Great Britain. Country living remains a widespread aspiration, but relatively high prices put rural homes out of the reach for many,’ said Martin Ellis, housing economist at the Halifax.

‘Potential first time buyers are particularly affected by high property prices, and consequently they account for a smaller proportion of home buyers in the countryside than in urban areas,’ he explained.

The research also found that the average house price in the countryside is equivalent to 6.3 times gross annual average earnings. The comparable ratio for urban areas is 4.9.

There are only five rural areas where the ratio of prices to earnings is below the historical long-term average of 4.0; Copeland in Cumbria at 2.7, Stirling at 3.4, East Ayrshire at 3.5, the Western Isles at 3.7, and Pendle in Lancashire at 3.9, so are the most affordable rural areas in the country.

The Cotswold is the least affordable rural area in Britain measured by the house price to earnings ratio with an average house price that is 9.4 times local gross annual average earnings. Six of the 10 least affordable rural areas in the country are in the South West.

Chiltern is the most expensive rural area in Britain with an average house price of £407,012. This is more than four times higher than in the least expensive rural area of East Ayrshire where the average price is £100,119.

First time buyers account for 40% of all mortgage financed purchases in rural areas, significantly lower than in urban areas where first time buyers account for 52% of such purchases.

Getting on the rural property ladder is at its most challenging for first time buyers in southern England. First time buyers account for only a quarter of all purchases in Cotswold and East Hampshire. In contrast, first time buyers account for over half of all purchases in Copeland, St Edmundsbury, Pendle, the Western Isles, Fenland, Moray, North Warwickshire and Carmarthenshire.

Article Source: http://www.propertywire.com/news/europe/uk-rural-property-premium-201310228374.html

Help to Buy Property Lending Scheme Phase II

This engaging article of the Property Wire on September 30th, 2013 discusses the second part of government's Help to Buy scheme on which it will be launch three months early.

The second phase of the UK government’s flag Help to Buy scheme is being brought in three months early and banks will start offering taxpayer subsidised mortgages on properties up to £600,000 from this week.
 
In a surprise announcement for some, Prime Minister David Cameron announced at the weekend that he was bringing the scheme forward and that state backed lenders, the Royal Bank of Scotland and Lloyds Banking Group, have signed up to the scheme and are ready to go.

Other lenders are expected to follow soon although it is understood that actually money will not be available until January. The details are expected to be made available later this week including fees. It was also announced last week that the scheme will be monitored by the Bank of England on an annual basis.

The announcement comes at a time when property industry commentators have been raising concerns that government intervention in the housing market to boost sales could create a property price bubble but last week the Bank of England said there are no signs of this happening, yet.

This second phase of the scheme extends Help to Buy beyond the new housing market and also allows buyers to get a loan on a home up to £600,000 with just a 5% deposit. It is well acknowledged that first time buyers in particular are struggling to find enough money for a deposit, especially in London and the south east of England where prices are much higher than the rest of the country and rising faster too.

This phase two of the Help to Buy scheme will be available for £12 billion of guarantees on up to £130 billion of mortgages and remain open for three years.

‘Despite the economy recovering, we know many families are finding it tough to get a mortgage deposit together. We are committed to helping as many people as possible across Britain to get on with their lives, to buy their first home, to move to a bigger house as their family grows,’ said Ross McEwan, incoming chief executive of RBS.

The bank said it would be offering a range of ‘competitive’ 95% mortgages to first and next time buyers in the UK and that it aimed to help 25,500 first time and next time buyers through the scheme.

Reaction has been mixed. In particular there is concern about prices rising too quickly in some regions as a result and also worries about the effect on the private rental market which has been boosted by the lack of lending to buyers.

According to Camilla Dell, managing Partner of Black Brick, the Help to Buy scheme is good news for first time buyers who, for many years, have been unable to get on the property ladder and have been forced to rent.
 
But she questions its overall positive effects on a property market that has been steadily improving. ‘The consequences of the government’s intervention into the market in this way may not be for the better. Undoubtedly, the market sub £600,000 is likely to rise and get quite competitive, particularly as the second phase isn't limited to just new build,’ she explained.

‘The knock on effect is also likely to cause changes in the lower end of the rental market. Help to Buy will take hundreds of tenants out of the market and could cause rents for properties valued up to £600,000 to fall. In central London, this is likely to be seen on one bed and studio flats.

‘So, wwhether it will be for the best remains to be seen overall, I'm not sure it will be. The problem with Help to Buy is it’s a bit like credit cards as people take on debt they can't afford, which is dangerous. In my opinion, the government should really be addressing why housing is so expensive in the first place, rather than finding a way to fund it. We need to build more homes so that supply eventually meets with demand, and that's where government’s focus should lie,’ she added.

Property expert Henry Pryor is not convinced, saying that the first phase of Help to Buy made sense for people looking to buy a new build home. He pointed out that in general this second phase, which was due to be launched in January 2014, was felt to be flawed and risked bucking the market and critics have included past and current Governors of the Bank of England, the treasury Select Committee, the International Monetary Fund, lenders, builders, all the main opposition parties and even the Business Secretary Vince Cable.

‘Everyone felt that this was a step to far and risked creating a price bubble. What's odd is to try to solve a supply problem by subsidising demand. Give 10 people trying to buy six houses more money and guess what they do with it? Ironically the Tory party aim of helping those who can't afford to get into the housing ladder will result in making those very homes they want to buy more expensive. It's nuts,’ he said.

However, others are more positive about bringing the scheme forward. ‘Allowing buyers of second hand homes earlier access to Help to Buy will stop the autumn market stultifying while everybody waits for the New Year.  It will therefore assist in avoiding the artificially pent up demand from the autumn overflowing into January,’ said Jonathan Hopper, managing director of property finders.

‘It is good news that the government owned banks have agreed to take part in the scheme so quickly, however we urge the other mortgage lenders to get on board quickly and offer the scheme to their borrowers,’ he added.

Brendan Cox, managing director of Waterfords estate agent, believes that it is possible that the move could fuel a housing boom as people who were previously unable to buy will be unleashed to the housing market and this is bound to send a ripple effect up the chain.

But he also pointed out that the Bank of England and the government have said they are going to keep a very close eye on this to make sure a boom doesn't happen although they haven't actually said what measures they intend to put in place to prevent it.

‘Stock levels remain low and this new dimension will surely only further increase prices as the supply and demand factor pushes prices upwards,’ he said, adding that it is also going to have an effect on the rental market.

‘We could see a levelling out of rental prices as tenants take this opportunity to buy their first home but we mustn't forget even raising 5% will be beyond a lot of tenants reach,’ he added.

‘Cutting the wait short for 95% government backed mortgages will clearly give renewed hope to frustrated would be home owners across the country, according to Peter Williams, Executive Director of the Intermediary Mortgage Lenders Association (IMLA).

‘The equity loan aspect of Help to Buy has been a resounding success and there is no doubt that the appetite exists for the new mortgage guarantee to fly off the shelves. That said, higher loan to value (LTV) mortgages have already become more readily available as funding has improved and competition intensified. In that respect the government needed to get the scheme out earlier to have any real impact. The first time buyer market in the UK has been driven off 95% LTV loans for many years so fully restoring that market will be helpful and should boost transactions,’ he explained.

‘The announcement’s timing during conference season does make Help to Buy’s political purpose even more explicit in terms of boosting party morale and electoral prospects. While the Bank of England is preaching caution and careful monitoring of house price inflation, bringing the mortgage guarantee forward by three months opens the government up to accusations of pushing too far, too fast. But with central controls in place to deal with any downsides of the scheme, it should still be possible to manage this intervention successfully,’ he pointed out.

‘Clearly the state supported lenders are the first to open for business and accept applications for the scheme. But with final terms and conditions still to emerge, not to mention costs, most lenders will need time to reflect before deciding what their offer will be. It is vital we guard against the assumption that all lenders will be able to accept Help to Buy applications from day one, which may result in even greater frustration from staff and customers across the country.

‘It is also likely that we will see interventions in the scheme over its planned three year lifespan, so lenders and borrowers also face the uncertainty of regular changes in terms and conditions. IMLA members’ concerns about Help to Buy’s possible effects on house prices have been partly eased by the revised controls regime, but considerable uncertainties remain: not least because the housing market is now firmly in the party political headlights,’ he added.

It will cause ‘a wave of excitement’, according to Brian Murphy, head of lending at the Mortgage Advice Bureau. ‘The Help to Buy mortgage guarantee has a clear purpose and will answer a real need by giving options to first time buyers and those home owners who have seen their equity eroded and been unable to make their next move. It is undoubtedly a welcome initiative from a consumer point of view,’ he said.

‘A key ambition over the next three years must be to re-establish 95% lending as part of a balanced and normally functioning market. With the government behind it, the market looks set for continued growth which will hopefully prompt a greater level of overall transactions and more willingness from lenders to get behind those buyers with limited deposits,’ explained Murphy.

‘Clearly there will be a flurry of activity as lenders bring their implementation and delivery plans forwards, once the final details of the scheme are confirmed. The important thing is for consumers to get clear, consistent messages about the mortgage guarantees, how they work and where they are available. Rather than becoming an overnight sensation, it would be in everyone’s best interests if the scheme is managed in a steady and sustainable way,’ he added.

Ben Thompson, managing director of the Legal & General Mortgage Club, reckons that the government didn’t want to leave it too late, but added that remains unclear exactly what the scheme details and specifics are for lenders, and in that regard precisely who will participate other than RBS and Lloyds Banking Group.

‘It is clear that there are potential first time buyers and movers who are having to spend significant time saving for a substantial deposit and this has to be fixed in order that families can live in suitable accommodation and enjoy home ownership in the same way that previous generations have. Bringing the scheme forward potentially enables some to buy or move a few months earlier than originally planned, in some regions saving a little more money, as house prices in some parts are climbing. It's therefore important not to leave this too late,’ he added.

Article Source: http://www.propertywire.com/news/europe/uk-help-buy-scheme-201309308291.html