The Intermediary Mortgage Lenders Association (IMLA) has warned that failing to replace the Help to Buy mortgage guarantee with a permanent mortgage indemnity scheme will push the first time buyer market back into decline.
According to its research, 65% of lenders believe that competition in the high loan to value (LTV) market will fall if the government scheme is allowed to expire at the end of 2016 without a permanent replacement.
Help to Buy 2 has been instrumental in prompting lenders to offer more high LTV loans either using the government guarantee, private mortgage insurance or independently. A recent report by Genworth and Moneyfacts showed product numbers at 95% LTV reached a post-recession high of 181 at the start of 2015.
IMLA ‘s research reveals 75% of brokers and 65% of lenders expect first time buyer numbers would drop if the scheme ends without a successor in place. A majority of both groups (75% of brokers and 85% of lenders) also believe that access to homeownership would suffer as a result, having already dropped significantly among 25-34 year olds in the last 10 years.
IMLA has called for UK political parties to address this issue in their election manifestos and pledge to implement a permanent state and/or privately backed mortgage indemnity guarantee (MIG) that can support high LTV mortgage lending in the long term.
This would relieve the pressure of capital requirements on lenders, which limit their capacity to offer these loans. A permanent MIG arrangement would provide capital relief to lenders in cases where high LTV loans are partially underwritten by the government or private insurance sector.
However, despite concerns over how the high LTV market will function without Help to Buy 2, IMLA’s research also reveals an expectation in industry that the scheme may be cut back this year.
Asked about possible market interventions by the Bank of England’s Financial Policy Committee (FPC) during 2015, brokers and lenders identify a scaling back of Help to Buy 2 as the most likely action: 51% of brokers and 40% of lenders feel this is likely. However, just 14% of brokers and 10% of lenders feel such action would benefit the market.
Peter Williams, executive director of IMLA, said: “The Help to Buy mortgage guarantee has breathed new life into the market and opened the door to more prospective homeowners without sacrificing standards when it comes to affordability checks. It is encouraging to see more lenders offering 95% LTV products outside of the scheme – but it would be a big gamble to rely on this continuing without the boost that the government has brought to the first time buyer market.
“Homeownership continues to fall, especially among younger adults, and letting Help to Buy expire without a permanent replacement will be another nail in the coffin of the ambitions of many people to own their own home.
“Capital requirements for lenders are increasingly demanding and are a major disincentive to support first time buyers unless they have a significant deposit. We need a long term plan to replace Help to Buy 2 with a mechanism that enables more activity and promotes a more inclusive housing market without sacrificing financial stability.
“In addition, if the FPC was to consider action in 2015 on the scheme, we would expect this to be supported both by strong evidence and full consultation rather than a sudden intervention. With a stabilising housing market, the pressure to act is reduced – and with access to homeownership so evidently a continuing problem, our hope and expectation is that the FPC will not act on impulse.”
