Lenders ‘over-reliant’ on Help to Buy: IMLA

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Lending on new build properties is being distorted by the Government’s ‘Help to Buy’ scheme, according to a new report from the Intermediary Mortgage Lenders Association.

Lenders have become over-reliant on this government support scheme, and there is the risk of this whole market collapsing in 2021, when Help to Buy is scheduled to end, it claims.

This IMLA report – ‘Keeping Britain building: mortgage lending in the new build sector’ –  paints a mixed picture. It states that lenders are more confident providing mortgages to new build properties, and there is now more competition and activity in this sector.

This confidence has been fostered by a switch from new build flats to houses.

However, the report identifies a worrying “dependency” on Help to Buy equity loans. These loans accounted for 27 per cent of all new housing completions between April 2013 and March 2017 – and were backed by an estimated £21bn of government funding.

The IMLA say there is an urgent need for lending options beyond 2021, to avoid a “cliff edge” collapse in new build lending.

The report says: “Withdrawing this scheme without replacement on its current timetable might weaken the new build market to the detriment of borrowers, government, housebuilders and lenders.”

This dependency on Help to Buy isn’t the only problem the report identifies in the new build market. It says there is currently a “live issue” with many new build properties being over-valued.

“While the advantage of purchasing a new home justifies a higher price, the premium has risen significantly in recent years and has been impacted by less sustainable factors, including builder incentives and even government support schemes such as Help to Buy.”

The report also highlighted the growing problem of leaseholds on new build property containing onerous ground rent clauses. It highlighted cases were ground rent doubles every 10 years. “Some lenders have stopped providing mortgage on these properties altogether,”  it says, which could impact these properties’ long-term value.

IMLA executive director Peter Williams says: “Lenders will always see new build as different and potentially riskier, but significant progress has been made in the last 10 years to put lending activity on a surer footing. Government stimulus has played an important part in this.

“The industry should stand ready to support initiatives that ensure a healthy supply of new homes for first time buyers with modest deposits, while ensuring that the solution works effectively for lenders as well as housebuilders.”

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