The Help to Buy mortgage guarantee scheme is not a “free lunch” and says bank take up will be hampered by the fact the Government is not paying for the guarantee itself, says fund manager Schroders.
In an investors note, published last week, the fund manager warned that some lenders may find the fee being charged by the Government to be “unattractive”.
The note said: “From the perspective of borrowers, this is equivalent to help in raising the deposits of borrowers, but for banks, it is an insurance scheme, which may be unattractive depending on the level of fees the government decides to charge. Not the free lunch we had expected after the Chancellor’s initial announcement.”
It also warned that the continuing rise in house prices would “reduce the affordability of homes”. According to Halifax, house prices are up 3.9 per cent in the three months to June, compared to the same three months a year earlier.
However, the fund manager has factored a “UK Osborne boom” into its forecasts for the housing market.
This is based on the assumptions that housing demand rises causing double-digit house price inflation, which causes “spill-over effects to the wider economy, helping to boost hiring and business investment”.
However, Schroders says this is not its “central scenario”, as it believes rapid house price inflation and limited take up of the MIG scheme will strangle such a scenario.
Trinity Financial Service product and communications manager Aaron Strutt says: “I don’t think there’s any doubt that there will be a greater demand created by the second phase of Help to Buy with people stretching themselves to move up the property ladder and into bigger homes.
“Depending on how high the demand goes, we may very well see the greater effects felt by the wider economy.”