As the dust continues to settle on this year’s Budget statement and more details of the Help to Buy scheme begin to emerge as key industry stakeholders give their feedback, there seems to be growing concerns about the Government initiative.
Some critics have unfavourably compared the scheme with the Fannie Mae and Freddie Mac models from the US and others have questioned whether it is the State’s responsibility to be guaranteeing mortgages and exposing the taxpayer to unnecessary liabilities.
We have long campaigned for first-time buyers to be given more assistance to realise their property ownership aspirations but feel that it will be more efficient to make use of the existing framework of the private mortgage insurance sector rather than put taxpayers’ money at risk.
We’re not alone in this belief either – commentators as influential as John Charcol’s senior technical manager Ray Boulger have publicly questioned why this logical option has been seemingly overlooked in the initial Help to Buy discussions, although there remains a hope that the State includes private insurers in the scheme before the initiative is introduced in 2014.
We have already seen a number of building societies successfully incorporate mortgage insurance into their higher LTV lending and subsequently enjoy a fillip in first-time buyer activity. So if larger lenders were to get on board with it too then a much broader base of potential homeowners would be able to get on the property ladder without creating unnecessary liability on the State.
Mortgage insurance can be effectively incorporated in the existing scheme, with FSA-regulated private insurers absorbing the losses. The Government could provide a back-stop guarantee to those insurers. This arrangement would not only insulate the taxpayers from losses but would also provide capital relief to lenders, incentivising them to lend more.