Borrowers will be able to apply for loans through the second part of Help to Buy from next week – three months earlier than planned.
Originally, the Government planned to launch the scheme in January but today (29 September) the Treasury announced lenders would be able to begin writing loans through the scheme from next week, although they will not be able to purchase the Government guarantee that underpins the loans until January, when the scheme officially launches.
Prime Minister David Cameron told the BBC’s Andrew Marr: “As prime minister I am not going to stand by while people’s aspirations to get on the housing ladder are being trashed.
“If we don’t do this it will only be people with rich parents to help them who can get on the housing ladder – that is not fair, it is not right.”
The mortgage guarantee version of Help to Buy allows borrowers purchase new-build or older properties worth up to £600,000 with a 5 per cent deposit. It will be available for three years up to January 2017.
Once the borrower has gathered their deposit, the Government will then provide the lender with a guarantee for up to 15 per cent of the property’s value, in return for a fee.
Lloyds Banking Group has already committed to offering loans through Help to Buy 2, but other lenders have been cautious about offering a commitment until they find out how much the guarantee will cost and whether they will get capital relief on the high LTV loans offered through the scheme.
One of the key criticisms of NewBuy, the predecessor of Help to Buy 2, was that it was difficult for lenders to gain capital relief. Capital requirements mean that lenders have to hold roughly six times more capital for loans at 90 per cent LTV or over than they do on loans under 60 per cent LTV.
While details of the cost of the guarantee and capital relief were not clarified today, the Treasury said it would offer more details this week.
Coreco director Andrew Montlake questioned whether most lenders would be ready to offer mortgages through the scheme so soon, especially as the details around capital relief and the cost of the guarantee were not yet clear.
He says: “This is an extraordinary announcement by the Government, especially as one of the biggest issues with part two of the Help to Buy scheme was that there was some concern whether lenders would be ready to introduce the scheme in January, let alone October.
“It will be interesting to see how many lenders will have the systems in place or the scope to cope with increased demand so soon.”
Help to Buy was the flagship policy of the March Budget and aims to boost the availability of 95 per cent loan to value mortgages but recently it has come under fire over fears it could create a housing bubble, with Shadow Chancellor Ed Balls and Business Secretary Vince Cable being amongst the biggest critics.
The scheme works in two parts; the first part came into effect in April as a shared equity scheme for new build homes. The second part, a £130bn mortgage indemnity scheme, which was first revealed by Mortgage Strategy in February, will come into force on January 1 for all properties worth up to £600,000.
Last week, Chancellor George Osborne announced the Bank of England’s financial policy committee is to be given the remit of monitoring the Help to Buy scheme and to recommend limiting the maximum loan size available through the scheme, as well as other measures, if it looks like a housing bubble is emerging.
But many argue a bubble is not emerging, pointing to the fact that while London house prices are up 10 per cent year-on-year, other parts of the UK have experienced flat or little house price growth in the past year.
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