The Chancellor George Osborne has given details about the government’s Help to Buy Mortgage Guarantee Scheme to lenders. But is this scheme an Important Development in the Housing Market or a further opportunity to accumulate debt?
At a meeting in Downing Street he spoke with lenders and builders about the details of how the scheme will work and how to get more first time buyers on the property ladder. The object of the Mortgage Guarantee Scheme aims to support an increase in high loan-to-value mortgages for people who cannot afford large deposits.
Help for first time buyers struggling to get on the property ladder is to be welcomed, if that is the route that people wish to go, its all about providing choice. However there is widespread criticism that this scheme will do little to bring the cost of housing within the reach of low and middle income earners. The Housing Market actually needs schemes to build more affordable homes, which if not done, then home ownership for millions of first time buyers will remain a pipe dream. The second phase of Help to Buy could benefit the whole market, particularly existing homeowners who want to move up the housing ladder but have not been able to.
These latest amendments to the Government Backed Scheme, when added to the criteria set out at the Budget, aims to try to helps a large number of people onto the property ladder while ensuring responsible lending. Anybody wishing to borrow money will be subject to income verification and stress testing, as set out in the Financial Conduct Authority’s (FCA) Mortgage Market Review. Borrowers won’t be able to access guaranteed mortgages if their credit history doesn’t meet FCA restricted credit standards, including having a County Court Judgment over £500 in the past three years, nor will people be able to use the mortgage guarantee scheme to buy second homes.
The Rental Market has been very buoyant these last few years, probably due to the fact that choice to purchase homes may have been restricted due to the availability of funding coupled with the more responsible criteria of the lending institutions. We must therefore also consider the impact on the wider housing market, which has been littered with reluctant landlords, who have wanted or needed to move house and been forced to offer their homes for rental, whilst they themselves have then rented instead of buying on.
I therefore suspect that this indemnity scheme will simply increase the number of options for first time buyers or home movers who need a mortgage at a higher loan to value level. What is certain, is that it will increase the level of debt to both the public sector and the private sector, a loan is a loan, wherever it comes from!
Therefore the statement that ‘The launch of the scheme is an important development and will give a significant boost to the housing market by addressing the issue of accessibility’ has to be coupled to the statement that ‘confidence in our housing market needs a boost, if we are to see both levels of activity and growth increase significantly’. So is this Help to Buy an Important Development for the Housing Market…..or a further opportunity to accumulate debt?