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Will Help to Buy really promote reckless lending?

The Government’s Help to Buy initiative, announced in yesterday’s Budget, is the latest in a string of schemes intended to kickstart the property market.

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Now at this point, I usually tear into the latest attempt to bring the housing market back to life.

After all, most of the schemes launched in recent years, if they’ve not been hair-brained, have done little more than tinker around the edges.

And while it’s true that Help to Buy isn’t perfect – for starters, it requires the mind of Russian chess grandmaster Garry Kasparov to fully understand its constituent parts – it does appear to be an improvement on previous Government initiatives.

What I believe might just make a difference with Help to Buy is the mortgage guarantee element, which, we’re told, will support up to £130bn of loans — on existing as well as new properties valued up to £600,000.

More details on the new mortgage guarantees for homebuyers will be released at a later date, but the bottom line is that they will remove a degree of risk from the lender.

It’s this risk that has in part prevented the Funding for Lending Scheme working in any material way at higher LTVs. After all, cheap money is far less attractive to a lender than safe money, i.e. lower LTV loans — or in this case, higher LTV loans with lower LTV risks.

It’s because of this that I think Help to Buy might — and that’s a very big might – make an impact on the property market.

Saying that, what we need to remember is that this isn’t all about lenders. It’s also about higher LTV borrowers, who often won’t meet the necessary affordability criteria. Help to Buy will achieve nothing if people can’t afford to buy.

It’s just a shame we have to wait until January 2014 for the new mortgage guarantee scheme to launch. If it does start to stimulate the bottom of the market then it will be to the benefit of the market as a whole.

Already, some commentators have questioned whether the new mortgage guarantees will lead to reckless lending. After all, if the state is underwriting the loans, where’s the risk for the lender?

Personally, I can’t see this happening. The high street banks are still reeling in the aftermath of 2008 and that the’s absolute last place they want to go back to.

The mortgage market will remain conservative, just slightly less conservative, with the mortgage guarantees, than it was before.

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  • Hugh Wade-Jones 27th March 2013 at 9:35 am

    ha ha, to be honest my area hasn’t been the same after they suspended the Habeas Corpus

  • .. 26th March 2013 at 3:44 pm

    My house price won’t go up because potential buyers are put off by the blitz…

  • Grey Haired Underwriter 26th March 2013 at 3:14 pm

    Ok – it was emotive to call it the Thatcher Government. If it is preferable to point out that the Conservative overnement of the 1980’s:-
    1) Deregulated the mortgage market in 1983 and caused the massive boom that followed
    2) Created a mini boom by the abolition of Double MIRAS folowed by the total abolition of MIRAS
    3) Withdrew Life assurance Premium relief on the endwoments people were using as capital repayment vehicles
    4) Took the country into the ERM that prompted Black Wednesday
    5) Sold off the bulk of the Social Housing stock without allowing Local Authorties to reinvest in housing

    then I am more than happy to do so. It is also not unreasonable to point out that Mr Blair actually continued to follow the principles ladi down in the 1980’s – the decade of the yuppies and greed is good. These generational issues continue to influence decades later and that is why I mention them

  • Hugh Wade-Jones 26th March 2013 at 1:06 pm

    Promote reckless lending – unlikely
    Drive up house prices – a tiny bit, nothing like artificially low interest rates have and will continue to do
    Blame Maggie – priceless

  • Tom Cleary 26th March 2013 at 12:21 pm

    Still blaming Mrs Thatcher?? Really? I suppose the Amercian sub-prime crisis and subsequent Credit Crunch and Global recession are her fault too? Seriously, get a grip….

  • Grey Haired Underwriter 26th March 2013 at 10:20 am

    I agree with NMcB. These sorts of initiatives plus a shortage of housing stock will only tend to drive prices upwards. The answer is not to flood the market with loan funds but to actually build some houses that meet the needs of the population – some good starter homes for those that can get the mortgage and some old fashioned socila housing for those that can’t. Until we bring supply and demand into equilibrium there will always be an issue about house price inflation. The trouble is that social housing goes against the ethos of the ‘home owning democarcy’ and deregulation of the mortgage market that the Thatcher Government promulgated in the 80s and we are still paying the price

  • Mary Lockyer 25th March 2013 at 8:22 am

    The impact will be moidifed by the current caution and use of affordability calculators and the more stringent and robust checking of documents as is now the case, the rampant inflation of the past was caused by the greed not only of the borrowers, but also the lenders, self sertified and interest only mortgages and fast track made this all possible, the lesson appears to have been learnt, mortgage fraud can still happen. For house price inflation to be controlled ideally it should be the first time buyer benefits first, at the least it should be owner occupiers only.

  • NMcB 22nd March 2013 at 4:17 pm

    Yes, it will have an impact on the housing market. House price inflation.

  • NMcB 22nd March 2013 at 4:17 pm

    Yes, it will have an impact on the housing market. House price inflation.