Boulger ponders government housing plans

“It is still too early to assess how big an impact the Funding For Lending Scheme will have but what can be said for certain is that, despite Santander's 0.5% SVR increase, mortgage rates for new fixed rate borrowers have fallen further over the last month.

"In addition, regardless of any increased appetite to lend already engendered by FLS, it has certainly been a major catalyst for the cheaper deals, which are not just confined to mortgages requiring 40% deposit or equity.

“Libor and swap rates have fallen sharply since FLS was announced, with 3m Libor down 0.41% to 0.68%, and swap rates at or very close to all times lows.

"This clearly reduces lenders’ funding costs and furthermore the swap rate yield curve between 2 and 5 years is now almost flat, with 2 year rates at 0.81% and the 5 year just 0.25% higher at 1.06%.

“As a result of this yield curve compression there is now minimal difference between rates for the best 2, 3 and 5 year fixed rate mortgages, with rates starting at just under 3% up to 60% LTV and under 5% up to 90%; furthermore 5 year fixes are at all time lows. This has had a significant impact on our advice and our clients' choice of deal.

“In August 25% of John Charcol clients chose a 5 year fixed rate, compared to 19.4% in July, 19.4% in the first 6 months of this year, 17% in 2011 and only 5.7% in 2010.

“It is likely to be even longer than with FLS before the impact of the new measures announced today by the Government to stimulate the building of more homes can be fully evaluated.

"However, allocating an extra £280bn to the FirstBuy programme to allow an estimated 16,500 further purchases under the FirstBuy scheme provides a very helpful additional option for first-time buyers with only a 5% deposit who buy a new build property.

“Many will prefer the much lower payments for 5 years this scheme produces, compared to a standard 95% mortgage using the Government's other subsidised scheme, NewBuy, and recognise that giving up part of any future capital gain in exchange for paying no interest for 5 years not only significantly improves their cash flow but also provides some protection from house price volatility.

“However, it is not only first-time buyers who are struggling to buy a property with a small deposit and need help. Many first and second time movers are in at least as difficult a position, with little or no equity in their current property.

"The principle objective of FirstBuy is to stimulate the construction of more homes and there is no logical reason why access to it should be restricted to FTBs. Following the precedent set with NewBuy this product should be more widely available.

“The ultimate cost to the Government of this scheme is tiny, possibly even nil, but it drives clear economic benefits in the wider economy. What better way for new Housing Minister, Mark Prisk, to make an easy hit in the first week of his new role, whilst at the same time helping a wider range of struggling home buyers, than by extending its scope? All it needs is for the product to be given a new name.”