If you were to ask most mortgage market practitioners, what has been the government’s number one housing priority over the last 12-18 months, I suspect you would get one of two answers. Either increasing the supply of housing in the UK, or supporting first-time buyers in getting on to the housing ladder? Any other mortgage/housing priorities appear to have paled into insignificance when compared to the measures that have been announced, or are about to be announced, in order to try and further these two goals.
Indeed, as we know, the government appears to have been willing to scupper other sectors – notably buy-to-let – in order to help first-timers onto, what it refers to, as a level playing field. The fact that negatively impacting buy-to-let doesn’t appear to have resulted in an increase in first-time buyer activity, may be lost on some, but this focus doesn’t appear to have run its course just yet. When it comes to first-time buyers one might even expect more measures designed to improve their plight, either directly – as has been done, for example, with the Help to Buy ISA – or indirectly, dare I say it, by going after landlords even further.
While the change of the old Cameron/Osborne guard makes the likelihood of the latter a less distinct possibility, it will be surprising if the new May/Hammond government isn’t at least willing to entertain the possibility of more support for first-timers. May, in her first speech as PM, effectively said as much and it’s never going to be a political calamity to support young people onto the housing ladder.
Which makes the decision to close down the Help to Buy: Mortgage Guarantee scheme (HTB2) at the end of the year as planned a rather odd one. Yes, it was always due to close down; yes, it’s not directly involved in supporting new build as HTB1 is, but the noises around the closure appear to be slightly off-kilter.
For a start, it was suggested the scheme was no longer needed. Now while I might agree that the state cannot carry on indefinitely supporting the provision of high LTV mortgages – those used predominantly by first-timers – I might suggest that Philip Hammond’s assertion that high LTV loans are back to their natural level without the scheme are, quite frankly, wrong.
Take a look at the most recent AmTrust/Moneyfacts LTV tracker report and you’ll be quickly disavowed of this notion. It agrees that HTB2 was a necessary catalyst for the high LTV market and resulted in more lenders, more products and more lending. But, the scheme opened over three years ago, and in recent quarters the level of high LTV lending has fallen quite dramatically. The number of products has fallen from 249 to 238; the level of high LTV lending itself now only accounts for 2.5% of all lending when at the height of HTB2 it was up at 4.2%.
All this against a backdrop whereby house prices remain high, housing supply looks unlikely to reach anywhere near the levels it should – despite anticipated further government intervention – and with HTB2 over, we have to seriously question the ongoing appetite of lenders to be active in the market for those with low deposits. Add in the added, major uncertainty to be wrought by the negotiations in the lead up to Brexit, and you have to wonder how lenders will continue to look at a market which they might deem ‘high risk’.
Now, HTB2 might not have been perfect – by all accounts its guarantee was pretty inflexible and quite pricey – it was at least keeping major lenders active in the high LTV market, albeit at falling levels. Take it away at the end of the year, and what comes next? Will lenders continue to operate as they have done in recent quarters, or will lending continue to fall even further? Some might opt for the risk mitigant that is private mortgage insurance but others might think they’re going to lend such small amounts that even this approach isn’t warranted.
Of course, for all we know, there may be a major announcement or two in next month’s Autumn Statement – indeed, I think most half expect it – which shows continued support for first-time buyers. But one has to think that we’re steadily moving back to a time pre-HTB2 when only those with the benefits of the ‘Bank of Mum and Dad’ are going to get into their first home. Part of me believes we’re already there.
Which leads us back on to the ongoing major problem which is, and will remain for years to come, housing supply. Finance is important but without new homes to purchase, it is irrelevant. The nettle has been lightly grasped by this government but it is still not enough – until we’re able to commit to the numbers required, regardless of objections, and perhaps until the government is willing to build itself, then the underlying problem will remain. We cannot move forward until this is addressed, and the longer we wait, the bigger the problem – to that end, we await November 23rd with great interest.
Richard Adams is managing director of Stonebridge Group