March 13th, 2014
New research commissioned by the Intermediary Mortgage Lenders Association shows that lenders and brokers alike believe that the rapid artificial inflation of house prices should increase calls for the Help to Buy scheme to end earlier than planned. The group, consisting of lenders that accept business from the broker community, compiled the community opinions on the state of the market and what part the Government based scheme had played in the on-going recovery.
Of those brokers contacted, 57 per cent stated that they felt an artificial increase to house prices was having the most detrimental effect on the scheme’s validity. In addition, 69 per cent of lenders concurred with this view, with particular focus on the risks the second phase of the Help to Buy scheme could begin to pose.
The second phase of the Help to Buy scheme allows a buyer to provide a 5 per cent deposit to purchase a property up to the value of £600,000, with the Government offering lenders assurances via a mortgage guarantee to assist in the event of a default. Banks and brokers believe that while the scheme allows many people to access mortgage funding, it is also acting as a catalyst for increased property values.
According to the Nationwide housing index, in February property prices rose to the highest level seen since May 2010, and this peak is just short of the highest levels recorded since pre-credit crunch in 2007. Many key supporters in the Government, not least the Chancellor George Osborne, will point to the fact that the highest rises in value continue to be in London and the South-East, and the highest recorded use of the scheme has been further afield in Leeds and Bedfordshire.
Peter Williams of the IMLA said: ‘These findings throw the spotlight on crucial policy decisions that must be thought through to safeguard the recovery in mortgage lending and house building. Whether or not the scheme runs its full course is less important than making sure we have a self-sustaining market in place going forward.
‘The evidence suggests that we have an entrenched mortgage market recovery which can survive its withdrawal.’
Simon Butler, from Contractor Mortgages Made Easy, said: "As the figures show, Help to Buy has not been widely used in the South, perhaps because property prices are so high that the rates on offer from the banks are hardly tempting. The majority of options under the 5 per cent scheme start above 5-5.5 per cent, while anyone with a 10 per cent deposit can secure a rate around 3.8-3.9 per cent. If a contractor plans on taking a loan around the average purchase value of £200,000 on the Help to buy rates, they should expect to be paying roughly £250 more a month that those with a larger deposit."
Butler views the issues in the capital and the South-East to stem from other quarters: ‘We find that estate agents and property developers are not helping the situation. The vast majority of buyers in the capital are viewing homes on an open house basis to increase competition, as demand is outstripping supply. In addition, agents in many cases refuse to remove a property from sale until a valuation or offer is produced, leaving the door open to gazumping.
‘Developers are just as guilty with the majority demanding a 28 day turn around for completion from the point an offer is accepted. What most need to bear in mind is that the mortgage process alone can take this amount of time, and processing times are likely to get worse once the Financial Conduct Authority’s Mortgage Market Review changes are made after Easter.’
Article By: Jon Shields, Media Executive at Contractor Mortgages Made Easy
Media Contact: Raman Kaur, Public Relations Manager
Tel: 01489 555 080