The Bank of England has told the government that its flagship scheme which has helped more than 79,000 buyers on to the housing market can be closed without any impact on the supply of home loans.
Help to buy was announced in March 2013 by the then chancellor George Osborne with the aim of encouraging lenders to provide mortgages requiring deposits worth 5% of the value of a property at a time when they were demanding bigger deposits.
The scheme is scheduled to close at the end of this year, and the Bank’s governor, Mark Carney, has told Osborne’s successor, Philip Hammond, that its closure would not affect customers with small deposits.
Carney told Hammond it was being used less by banks to guarantee lending to customers who would otherwise have been turned down for mortgages as their deposits would not have been large enough.
Under the scheme the government offers lenders the option to purchase a guarantee on mortgage loans where the borrower has a deposit of between 5% – a loan to value (LTV) of 95% – and 20%. The Bank said it has not posed a risk to financial stability or created a housing bubble.
Carney said: “Over the past year, use of the scheme has declined significantly. In [the first quarter of ] 2016, loans in the scheme accounted for only 3% of total mortgage lending for house purchase and 25% of lending at LTV [more than 90%], compared to 6% and 70% respectively in 2014”.
“Although use of the scheme has fallen, total lending at high LTV has has not declined. Instead more high LTV has taken place outside the scheme, as the availability of high LTV has recovered from its crisis lows,” the governor added.
However, Patrick Bamford of AmTrust International, Mortgage and Special Risks, which provides guarantees to mortgage lenders, said that lending to customers with low deposits was not rising as quickly as the rest of the market. Mortgage lending is up 19% over the last four quarters but up 8% on LTVs between 90 and 95%, he said.
Peter Williams, executive director of the Intermediary Mortgage Lenders Association, said there was risk first-time buyers could be frozen out. “The committee’s assertion that mothballing the scheme will not affect provision is not necessarily true.
“While the government always viewed the help-to-buy mortgage guarantee scheme as a short-term measure to boost high LTV lending, the reality is that such loans are still in relatively short supply.
“By ending the scheme and not lining up an alternative, policymakers are closing off a not un-important avenue to prospective first-time buyers. The scheme is costly for lenders, but some have been using it and its removal therefore poses the question of how high LTV lending will be impacted.
“It is paramount this part of the market does not diminish after the end of this year, which would push many aspiring buyers back to square one.”
The Council of Mortgage Lenders has concluded that while such a scheme might be helpful amid the uncertainty prompted by the Brexit vote, it was difficult to argue it should be extended because of the amount of high LTV lending taking place outside the scheme and the fees the lenders are charged. Its research showed 79,000 loans were granted under help to buy with 95% of them outside London with an average LTV of 94% compared with 65% for mortgages outside the scheme.
The Bank’s assessment of help to buy coincided with data from the CML showing that mortgage lending in August was at its highest since 2007.
Mohammad Jamei, senior economist at the CML, said: “Widely voiced fears in recent months about the housing market have proved to be wide of the mark.”
Other aspects of the help-to-buy scheme are scheduled to continue beyond the end of the year, including lending for new-build properties.
When it was launched the government said it would guarantee £12bn and by June 2016 it amounted to £11.6bn. Its use peaked in July 2014 when more than 4,000 loans were granted through the scheme.
