September 27th, 2016
The Help to Buy mortgage guarantee scheme is no longer needed, the Bank of England has told the government.
The scheme encourages lenders to offer mortgages to borrowers with a deposit as low as 5% due to government backing.
The scheme is due to finish at the end of the year.
However borrowers with a 5% deposit can access mortgages outside of the scheme at a similar or, in some cases, a cheaper price.
In addition, demand for the scheme has declined at the same time as lenders are reporting a general rise in business.
The Council of Mortgage Lenders (CML) said its members had lent a total of £22.5bn during August, 7% higher than July and up 15% year on year – the highest level of August lending since 2007.
The Bank of England’s Governor Mark Carney wrote a letter to Chancellor Philip Hammond saying that closing the scheme would not cause lending to dry up or leave borrowers with smaller deposits with no options.
Carney said: “Over the past year, use of the scheme has declined significantly. In [the first quarter of] 2016, loans in the scheme accounted for only 3% of total mortgage lending for house purchase and 25% of lending at LTV [more than 90%], compared to 6% and 70% respectively in 2014”.
“Although use of the scheme has fallen, total lending at high LTV has has not declined. Instead more high LTV has taken place outside the scheme, as the availability of high LTV has recovered from its crisis lows,”
“Given the decreasing usage of the scheme over time, the [Financial Policy] Committee judges that the closure of the scheme would be unlikely, in current market conditions, to affect significantly the provision of finance to prospective mortgagors, including high loan-to-value borrowers.”.
The Help to Buy equity loan scheme and Help to Buy ISAs are unlikely to be affected and will still offer support to home buyers with a smaller deposit.
Article by: Bradley George, Senior Protection Consultant at Contractor Mortgages Made Easy
Media Contact: Sarah Middleton, Public Relations Manager
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