Ryan Bembridge analyses the plethora of schemes aimed at first-time buyers entering and leaving the dysfunctional mortgage market
Scheme expiry
With the scheme set to expire on 31 December this year there is the suggestion rates will become more expensive again as fewer lenders battle for 95% LTV business.
Intermediary Mortgage Lenders Association executive director Peter Williams worries about this. “Great strides were made in 2015 to drastically reduce the price of high LTV loans, but without a form of guarantee in place, lender appetite could sink,” he warns.
“High loan-to-value is quite an important factor in terms of people’s access to the housing market.
“If we squeeze down on high LTV lending and lenders leave the market, who wants to fill their boots with high LTV lending?
“The government is taking protection away when affordability pressures remain intense.”
Williams adds that some lenders will choose to purchase their own mortgage insurance to retain their high LTV offerings.
Paul Broadhead, head of mortgage policy at the Building Societies Association, agrees. “My concern is the government hasn’t articulated its exit strategy to prevent banks leaving the market,” he says. “It could go from a famine to feast back to famine again.
“There’s no need for widespread concern but the government should exit in a managed way.
“There is private sector insurance that can replicate the Help to Buy scheme but the question is whether the insurance sector has the capacity to provide that. That’s something that should be addressed before the end of the year.
“They should be talking to all of those lenders in the schemes to understand what they are going to do afterwards.”
Ashley-Roche speculates whether lenders will charge customers to cover the increased risk. “I’d like to think lenders will continue lending at 95% LTV even when the scheme ends,” he adds.
“If high LTV lending is considered riskier without the guarantee lenders might charge an insurance premium. Back in the day Nationwide used to add £1,000 to the mortgage and another lender charged 0.5%.”
Lenders themselves seem less concerned about the expiry of the scheme however.
A spokeswoman for Santander, which left the scheme in September 2015, says the bank isn’t worried about pricing and 95% LTV availability next year. She says: “By the end of its second year, more than 70,000 loans had completed in the Help to Buy mortgage scheme.
“This scale of lending will have given lenders a good early understanding of performance of these loans, and some insight into potential future loss rates.
“Therefore, we’d expect more lenders to continue lending at 95% LTV and for this established market to remain healthy.
“We believe there will be enough lenders offering loans at 95% LTV after the scheme closes to ensure a competitive market exists for these borrowers beyond the life of the scheme. We haven’t increased our product pricing since leaving the scheme in September 2015 and wouldn’t expect to see borrowers worse off as the scheme closes later this year.”
A Lloyds Banking Group spokesman meanwhile adds: “We will carefully consider our options for continuing to support customers with a smaller deposit.”
Jeremy Duncombe, director of Legal & General Mortgage Club, doesn’t think the scheme is relevant anymore. “Lenders will pick up the slack when the scheme expires and I don’t see the cost of 95% LTV deals going up,” he says.
