Help to Buy 2 boosts sustainable growth

Yesterday the European Commission suggested that the scheme was fuelling unsustainable house price growth and should therefore be curbed by the government.

However in London; where the perceived housing bubble stems from, Help to Buy 2 accounted for 2% of first-time buyer activity.

The mortgage scheme has nevetheless delivered a 16% year-on-year rise in first-time buyer loans, with there being 35,700 more loans.

Simon Crone, Genworth vice president of mortgage insurance Europe, said: “These figures refute the notion that Help to Buy has flooded the market and show it delivering what it set out to achieve.

“What the scheme is doing, as a fraction of total first-time buyer activity, is offering hope to those who struggle to raise the average deposit but can still afford repayments and pass affordability checks.

“Responsible lending at higher LTVs has a vital role to play, especially when it is getting tougher for people on good wages to save a deposit as prices rise. Builders will only build if people can buy, which is why prudent high LTV lending is an essential part of the picture.”

Between October 2013 and March 2014 the 5,843 Help to Buy 2 loans to first-time buyers made up just 3.9% of the 148,200 loans to first-timers.

In London meanwhile Help to Buy 2 loans to first-time buyers represented just 1.4% of total during the same period.

In terms of product availability, numbers fell in all but one LTV band during May following the introduction of MMR on April 26.

Thanks to the scheme however there were almost twice as many 95% LTV products year-on-year.

Simon Crone added: “The ability to get a mortgage with a 5% deposit makes a world of difference to buyers without the financial muscle that comes with parental support, an inheritance windfall or disproportionate sacrifice over years of scrimping and saving.

“Help to Buy 2 has reinvigorated high LTV lending and helped product numbers to stand up in the face of the new mortgage rules. But withdrawing the scheme would have far graver consequences for first-time buyers.

“Without a clear long-term strategy and a sustainable plan to support this part of the market, we risk seeing lenders turn their backs again when government support expires.”

High LTV mortgages have escaped the full effect of rising interest rates, as the average 2-year fix rate at 95% LTV has risen by 9 basis points since January compared to 12 at 90% and 16 at 75%.

With 5-year fixed rate products meanwhile the average 75% LTV rate has risen by 35bps, compared with just 11bps at 95% LTV.