PTFS: Advisers at the heart of the economic recovery
It allows potential home owners to access cheaper funding by topping up their current deposit with a 5 year interest free loan providing they have just a 5% deposit.
But those of us who still remember the housing market “on steroids” will look back at the number of people who are currently mortgage prisoners after accessing the wonderful “together” mortgage – a 100% LTV mortgage and 20% secured loan – when they called it together I don’t think they meant house and borrower.
So is the new Help to Buy scheme going to be any different?
True it is not directly linked to the value of the house – there is a deposit required and therefore some financial comfort should house prices fall but we are talking about the majority of these loans going in to new build which is traditionally priced at a premium and therefore could be considered as 100% lending. And remember the larger the loan, the greater the impact of the 20% interest free element against the 5% the homeowner is contributing.
Advisers who have experienced the days of 120% LTV lending will know how sensitive the market can be and the impact of allowing customers access to these arrangements without full advice.
They need to be made very aware of both the upsides – a chance to buy their dream home with a subsidised loan, and the downsides, they may be paying back more than they thought when they come to sell, or have to budget for a sharp increase in their mortgage payments after five years.
For many homeowners, taking an interest free loan rather than commit all their savings will have positive impacts on the wider economy as they can spend their savings on new carpets, TV’s and even have money left over to maintain interest in going out, an activity for many that finishes as soon as the mortgage completes.
And don’t forget the bank of mum and dad, the interest free loan will release them from the burden of family gifted deposits for the next five years and allow them to spend savings in a more economically beneficial fashion.
So advisers are key as homeowners who take advantage of the scheme will need on-going advice not just in how to repay the mortgage but potentially how to repay the government.
Analysts in the short term should be closely watching the instructions given to valuers as they try to protect the interests of the lender, government and borrower.
Longer term it will be more about looking to the house price index over the five year period – something the intermediary market is well placed to do.
The question for me is are we storing up problems for the future?
Lets hope the housing market is robust enough to make this initiative a success.