10th December 2013
The Council of Mortgage Lenders has played down the impact of Help to Buy on the mortgage market and says predictions of it leading to hundreds of thousands of transactions may be unfounded. In its market forecast, the CML says that the design of the scheme means it is not a “must have” product for either lenders or borrowers.
In its forecast for next year, the mortgage lenders’ trade body points out that lenders pay a commercial fee for the guarantee and, although they may choose which loan buckets to apply under the scheme, they are not able to “cherry pick” which loans go into the scheme. It adds that lending criteria to any borrower have to comply with the new rules on affordability and that certain borrowers are not eligible to participate.
“The bottom line is that the mortgage guarantee scheme is by no means a “golden goose”, as can be judged from the relatively cautious manner in which lenders have engaged with it,” it says.
The trade body says initial interest has focused on applying the scheme to house purchase lending in the highest LTV bucket up to 95% LTV. It argues that this is understandable, given that greater competition for business up to 90% LTV has begun to emerge over the past year.
“From a borrowers’ perspective, we would expect the scheme to appeal particularly to households who, but for a deposit constraint, would be able to get onto the housing ladder under their own steam, so those with somewhat higher incomes and a little bit older than typical first-time buyers. This closely matches the profile of early applicants, as reported recently by prime minister David Cameron.
“While this profile may well shift over time and perhaps become less concentrated on first-time buyers, it does suggest that the two elements of the Help to Buy initiative are fairly complementary in nature.”
The CML says it may be difficult to get a fix on the volumes of business. However it thinks some commentators may be overstating its impact.
“While the majority of commentaries seem to factor in several hundred thousand transactions over the next three years, this is by no means a given, especially as we are beginning to see competitive offers from firms remaining outside of Help to Buy.
“Our instincts are that sustainable volumes may be much lower, given that the overall financial position of households is unclear, and that CML market research earlier this year illustrated that the scheme would not represent a panacea for borrowers.
“We recognise that there are potential risks with the mortgage guarantee scheme, especially as, unlike the Help to Buy equity loan scheme, there is no direct link to new build. By making life easier for those who have been deposit-constrained, the scheme clearly has some potential to stimulate demand, and so add to upwards short-term pressure on house prices.”
The CML says the issue is one of degree and it welcomes the planned review by the Bank of England Financial Policy Committee which will make an assessment of the impact on the housing market. “This provides a helpful safeguard, and one that the CML strongly supports, given that our industry does not want the mortgage guarantee scheme to become a permanent feature of the market”.