It’s somewhat perplexing to see how quickly the mood in the mortgage market can change from one of abject gloom and despair to absolute euphoria within the space of days. Clearly the mainstream market data coming out at the moment presents a much more positive picture however, if we’re all being truthful, then this tick-up in residential activity is only a couple of notches up from the bottom of the market. And in the UK we bumped along the bottom for quite a few years post-credit crunch.
So while it is pleasing to see the market on the move upwards I would firstly implore those advising in the sector not to get too over-excited and to ensure they cover off all product angles not just the mortgage; and secondly, with all the government and Bank of England backing the mortgage and housing market has received in recent times, if we had not started to show some progress then there would have been many questions to be answered and I suspect some senior individuals would have been for the high jump.
The big buzz at the moment is of course Help to Buy 2 – the mortgage guarantee element – and the decision to bring this forward from January to earlier this month. What was clearly a political decision seemed to catch many lenders on the hop – apart from the State-owned ones (quelle surprise) – and my own belief is there will be no rush to release HTB-backed high LTV mortgage products from the vast majority of lenders before the early part of next year. This is in part due to the somewhat restrictive nature of the guarantee scheme but also the fact that lenders have to ensure they are MMR-compliant at the same time.
I hear from our lender peer group that many are finding it difficult to marry up both their MMR commitments and responsibilities with their ability to get fully involved in HTB2 and therefore the Government might be slightly surprised at a less than overwhelming take-up this year. That said, I fully expect the scheme to have an impact with much more product availability at high LTV levels although consumers and brokers should not expect them all to be at what they might consider ‘market-leading’ rates.
While HTB2 is open to all, it is possible that first-time buyers and second steppers have the most to gain from the scheme which has led some to question it will have a considerable impact on the UK’s buy-to-let market. Some have even suggested that HTB2 is going to deliver a significant kick to the private rental sector with, one presumes, the assumption that those who were either destined to rent, or are currently renting, will now have all the means at their disposal to bypass that option and go straight to the option marked ‘Buying your own home’.
No doubt there will be some individuals, couples and families who take advantage of HTB2 (and 1) and secure a route from renting to owner-occupation however to suggest a mortal blow will be struck against the private rental sector is ludicrous. Those seeking to purchase still have to find the necessary deposits in order to secure a 90 or 95% product and they will still have considerable challenges to overcome not least in terms of affordability now and into the future. While those lenders involved in HTB2 are paying a fee for the security of the guarantee this does not mean they are loosening their criteria in order to bring in customers. In fact, given that the government/taxpayer will be on the hook for any loans gone bad, the lenders are having to be as tightly focused on borrowers, their credit records, affordability, and everything else which is taken into account before a loan is offered.
Therefore, while the deposit/equity requirements may have become less onerous, all other checks and balances are as tight as they ever were, which will mean significant numbers will still not be able to make their property dreams a reality. Plus we should not forget the fact that, in today’s day and age, many people actively want to rent rather than buy, and private rental demand is not likely to tail off too dramatically as a result of HTB2. In fact one suspects that the popularity of purchasing investment properties and becoming a buy-to-let landlord is only likely to go in one direction for a considerable period of time.
Bob Young is managing director of CHL Mortgages
