by Mark Johnston
Help to buy scheme (part 2) brought forward…..
The Government launched Help to Buy phase one earlier this year to give a boost to the housing market.
The Government’s next boost for the property market claims it will help full fill people’s ‘aspiration’ of home ownership.
Phase two of the Help to Buy scheme involves a £12 billion liability fund that will guarantee up to 15 per cent of a mortgage, acting as an indemnity for the banks and building societies who sign up. This means lenders can provide mortgages more confidently to borrowers with a 5 per cent deposit.
In short borrowers will only need to provide a 5 per cent deposit with the rest of the deposit guaranteed by the government in return for a commercial fee, which is as yet undisclosed, from the lender.
There is already a similar indemnity scheme, called NewBuy, which ends in 2015.
This part of the scheme will apply to all types of properties, first time buyers, home movers and re-mortgagers and the Help to Buy mortgage guarantee scheme will be available for three years up to January 2017.
The second part of the help to buy scheme was originally going to be launched in January 2014, however the government has now decided to bring it launch forward three months earlier than planned.
Some economists and even some members of the cabinet have already called on the government to consider dropping the second phase of the scheme over fears house prices will continue to rise and create a new asset bubble.
The Prime Minister David Cameron however urged people to “trust” the Bank of England, which has been given an enhanced role in monitoring the effect of the scheme on prices.
There are other signs that the plans have been rather rushed through: just two lenders have been signed up to the scheme so far. Government backed lenders Lloyds TSB banking group and the Royal Bank of Scotland (RBS) have confirmed their commitment to the scheme.
Other lenders such as HSBC, Santander, Nationwide and Barclays, some of the UK’s biggest lenders, have stated that they will need to see details of the fee they pay the government for the guarantee and what sort of capital requirements they need to provide for high loan to value (LTV) mortgages before deciding whether to take part and pricing their products.
Adam Marshall, of the British Chambers of Commerce, suggests that “With all the concern expressed about Help to Buy, rushing in to it seems less than responsible on part of government.”
Ben Thompson, managing director of Legal & General Mortgage Club, also claims that “these schemes may not be needed if there was an adequate housing supply and demand balance.”
All in all many financial experts believe that the mortgage market outlook is very unlikely to dramatically change because of the new part of the help to buy scheme. However, only time will tell!
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