Bob Hunt is chief executive of Paradigm Mortgage Services
Despite the apparent success of the Help to Buy Scheme – particularly the equity loan part which saw a further 2,000 completion in May this year – it still appears to be in both the regulatory and political spotlight because of its perceived impact on house prices.
This is despite the fact that loan sizes for Help to Buy are at average levels compared to the rest of the market and most of the loans have been taken out in areas of the country outside the London/South East ‘house price hot spots’.
The fact is that with the UK housing market, perception is everything and given the most recent house price index from Nationwide showed average prices back above their 2007 peak, it is perhaps no surprise that any government-provided scheme is going to be viewed suspiciously because of its potential to add ‘fuel to the fire’.
I would not call the continued focus on Help to Buy and house price inflation ‘scare-mongering’ but there is without doubt a strategy in place to highlight house price increases as the major risk to the economy.
Indeed, the deputy governor of the Bank of England explicitly said as much last week. Sir John Cunliffe said: “It’s not the risk around house prices as such, it’s the risk that we get a sustained rise in house prices – and this is very important – [the risk of] house prices rising faster than people’s income.That leads to the sustained increase, a big increase in the amount of debt in the economy, in the amount of debt that mortgage holders have.”
With this sort of pressure being brought to bear it is perhaps not surprising that participating Help to Buy lenders are feeling the need to react. Again, last week we saw Halifax – quickly followed by Nationwide – restricting access to their Help to Buy 1 product ranges through the broker channel.
Both lenders will not accept homemover applications through brokers and will only offer loans to first-time buyers. Of course, at present, homemover borrowers could go direct to the lender and secure a mortgage but I suspect the number of applications both receive direct are far less than they have seen through the broker channel and therefore they are pulling back in a significant way.
There are of course many who would argue that Help to Buy should only be accessible to first-time buyers and that George Osborne and the Treasury went too far in opening up the scheme to homemovers. I, on the other hand, accept that there will be significant number of potential credit-worthy second-steppers who have been effectively stuck in their homes for a number of years because of their lack of access to high LTV loans which would allow them to move. Helping this group of borrowers is a way to free up housing stock, to generate property chains and get these people moving into homes which are suitable for them.
There were (and are) still merits for homemovers having access to Help to Buy however it now appears the number of scheme providers who will look at them has diminished.
So, what does the mean for the market overall? In essence, we are seeing a continued tightening of lending due to a number of external pressures and the introduction of the MMR rules. Intervention in the mortgage market is only likely to increase in the future and lenders are having to respond to the existing changes and those that might be coming over the horizon.
For brokers it means client communication becomes even more important – the market changes daily and some clients who might well have expected to access Help to Buy, or to have easily secured a mortgage, are going to be left disappointed.
Now is certainly the time to manage expectations and to ensure the client does not have an overly optimistic view when it comes to securing their finance. The mortgage market is very much a moveable feast and advisers show their worth by keeping on top of its changeable nature and relaying that information to their clients whilst identifying solutions.