Understanding Help to Buy
Brian Murphy is head of lending at Mortgage Advice Bureau
The Government’s Budget announcement of the Help to Buy initiative was a welcome revelation for the mortgage industry.
While the future of the Funding for Lending Scheme remains at the discussion stage, the promise of £130bn of loans over three years through the new mortgage guarantee scheme set lenders’ pulses racing.
Help to Buy is poised to give a long awaited push to help lending for house purchases climb the loan to value scale: reducing risk for lenders and opening up the market to those struggling to save a substantial deposit. Implementation of the scheme in January 2014 will be keenly anticipated, although the criteria have come under fire from the opposition due to ambiguity over its availability for second home purchases.
It is important this is ironed out, if the scheme is to meet its objective as an aid to those struggling to buy their first home or move to a bigger property.
It does expressly exclude buy-to-let and interest-only deals, favouring homebuyers with a proactive approach to repaying their mortgage debt.
This will be music to the ears of homeowners and prospective buyers currently trapped out of the market by high deposit requirements. Despite improvements in mortgage activity in recent months, FLS has struggled to shift purchase mortgage LTVs, with a mere 1% increase since its launch.
Remortgaging has fared better, with LTVs increasing by an average of 5%, and MAB’s National Mortgage Index seeing a jump in remortgage applications close to 20% in the last month alone. So far the scheme has largely benefitted those who already had access to mortgage finance, and there is still significant scope to improve its targeting to create more effective returns. As the Government continues talks with the Bank of England over the future of FLS, a fine-tuning of the scheme would be warmly received.
Despite certain flaws, continued strengthening of market activity since its start show FLS has laid a genuine foundation to promote growth in the market. Consumer confidence is up, and a market that has been cautious in its approach to lending since 2008 is starting to feel a little bolder.