Lenders’ restricted appetite for Help to Buy remortgages means borrowers face higher prices and limited choice as they start to move off the scheme in just two months’ time.
Some even risk becoming mortgage prisoners, experts say.
The Government says 28 lenders accept HTB equity loan applications. These include high-capacity firms such as Barclays, Halifax, Nationwide, NatWest and Santander.
However, only nine offer a like-for-like HTB remortgage, with the largest lenders being Barclays and Halifax. The rest include smaller lenders such as Mansfield, Newbury and Newcastle building societies, as well as mid-sized lenders Leeds, Skipton and TSB.
The scheme was set up in April 2013 and the Government loan element is interest-free for five years. This means April and May 2018 will see a wave of HTB borrowers looking to remortgage.
Mortgage Advice Bureau new homes relationship manager James Chidgey says: “All parties are very concerned. From 1 May there will be an initial tranche — getting larger and larger every month — of borrowers coming out of their five-year loan. Their options are narrow.”
John Charcol senior technical director Ray Boulger says: “Bearing in mind how we’ve had the HTB scheme, it is surprising how few lenders are in the remortgage space. People will not get a good deal as they ought to because of a lack of competition in some cases.”
The fact some lenders that offer HTB remortgages are smaller means that, potentially, they cannot be as competitive on rates.
Chidgey says: “Clearly, with the range of lenders doing the remortgage, they may not be as competitive as if we had more high-street names and more options involved.”
Boulger adds there is a risk of becoming a mortgage prisoner for a few HTB cases.
He says: “The first-time buyers who will be in the worst difficulty will be those caught out by those onerous leasehold clauses where the value of the property has fallen substantially because of the lease terms. Those are the people who will be mortgage prisoners. They won’t be able to remortgage as they don’t have enough equity.”
Others are more upbeat about the future. Legal & General new-build manager Craig Hall says the HTB remortgage market has enough capacity to meet demand and three or four more lenders plan to enter the sector this year.
He also notes that some lenders also offer HTB remortgaging with a capital-raising element, enabling borrowers to part-redeem the government loan with another loan. Barclays, Leeds and Skipton offer this facility, according to Criteria Hub.
Chidgey is also optimistic about the scheme in the longer term. He says: “It is not a very healthy sector at present but we are taking steps to talk to lenders and encourage them in.”