CIH still concerned as Cameron launches 2nd part of Help to Buy
Published by Brian Church for 24dash.com in Housing
Grainia Long appointed Chief executive of the CIH
Ignoring sector concerns over needlessly stoking house prices, Prime Minister David Cameron and Chancellor George Osborne today officially launch the Help to Buy mortgage guarantee scheme which aims to "help thousands of people buy a home of their own".
Downing Street said the "landmark £12 billion scheme" will involve Natwest, RBS, Halifax and Bank of Scotland which will start offering new Help to Buy mortgages as early as this week.
This is the second part of Help to Buy with the mortgage guarantee aimed at people who could afford to pay their mortgage but never get the chance as they cannot afford large deposits of up to 20 percent of a property’s value.
The scheme is controversial with fears it will simply send house prices even higher and do nothing to address the major problem – lack of supply.
Grainia Long (photo), chief executive of the Chartered Institute of Housing, said: “CIH has already warned that the government still has more to do to address concerns that the second phase of Help to Buy could have unintended consequences for the housing market … We remain concerned that Help to Buy could simply increase prices if it is not matched by an increase in house building.
"We were pleased to see the Bank of England given a role in monitoring the impact of the policy on a yearly basis, but the housing market can move very quickly and we would like to see more clarity around the government’s proposals for monitoring the scheme between formal reviews.”
Virgin Money has confirmed they will participate in the scheme and will be offering new guaranteed mortgages to borrowers in the New Year. Aldermore Bank has confirmed that it is joining the scheme in January and is exploring whether this date can be brought forward.
The banks will offer a range of new Help to Buy mortgages – up to 95 percent of the property’s value – for homes worth up to a controversial top value of £600,000.
Under the scheme, buyers will only need a deposit of as little as 5 percent. Depending on the size of deposit, the government will then guarantee up to 15 percent of the property’s value, in return for a fee from the lender.
No. 10 said the launch of the scheme has been brought forward by three months because the details are finalised and lenders are in a position to start offering the mortgages. Cynics have suggested more political motives for advancing the scheme.
Lenders can start offering the mortgages now, and they will be guaranteed by the government from January 2014.
Cameron said: "Too many hardworking people are finding it impossible to buy their own home - people who can afford the monthly mortgage payments but haven’t got rich parents and can’t pay the deposit up front.
"There is a need for government to act. Buying your first home is about far more than four walls to sleep at night. It’s somewhere to put down roots and raise a family. It’s an investment for the future. Above all, it’s a sign that everything you’ve put in has been worth it. Our Help to Buy Equity Loans, have already helped over 15,000 people buy a new home. But we’ve got to go further and finish the job we’ve started."
Jonathan Harris, director of mortgage broker Anderson Harris, said: "Lenders have started to release rates available under the scheme and they are pegged where we would expect them to be. A good credit score and affordability are key, with lenders applying normal criteria for high loan-to-value borrowing. This is only right as lenders should be lending prudently and only to those who can afford to repay their mortgage.
"Having said all that, a couple taking on the maximum loan via the scheme - £570,000 - would need a combined salary of around £142,000, plus the £30,000 deposit and money to cover other costs - stamp duty, conveyancing, survey and other associated fees. They would also need a good credit history and minimal other financial commitments. If they then opted for Halifax's two-year fix pegged at 5.19 percent, they would be looking at monthly repayments of £3,396, which would represent nearly half their combined monthly net income. This is a considerable commitment so the lender will want to ensure that the couple could service it with relative ease. At the very top of the scale then, the scheme would suit a young professional couple with good incomes who haven't had the chance to build up any savings."