Almost two thirds of lenders (65%) believe that competition in the high loan-to-value market will fall if the government scheme is allowed to expire at the end of 2016 without a permanent replacement.
IMLA believes Help to Buy 2 has been instrumental in prompting lenders to offer more high LTV loans either using the government guarantee, private mortgage insurance or independently. A recent report by Genworth and Moneyfacts showed product numbers at 95% LTV reached a post-recession high of 181 at the start of 2015.
IMLA ‘s research reveals three quarters (75%) of brokers and 65% of lenders expect first-time buyer numbers would drop if the scheme ends without a successor in place.
A majority of both groups (75% of brokers and 85% of lenders) also believe that access to homeownership would suffer as a result, having already dropped significantly among 25-34 year olds in the past ten years.
IMLA has called for UK political parties to address this issue in their election manifestos and pledge to implement a permanent state and/or privately backed mortgage indemnity guarantee that can support high LTV mortgage lending in the long term.
This would relieve the pressure of capital requirements on lenders, which limit their capacity to offer these loans. A permanent MIG arrangement would provide capital relief to lenders in cases where high LTV loans are partially underwritten by the government or private insurance sector.
However, despite concerns over how the high LTV market will function without Help to Buy 2, IMLA’s research also reveals an expectation within the industry that the scheme may be cut back this year.
Asked about possible market interventions by the Bank of England’s Financial Policy Committee during 2015, brokers and lenders identify a scaling back of Help to Buy 2 as the most likely action: 51% of brokers and 40% of lenders feel this is likely.
However, just 14% of brokers and 10% of lenders feel such action would benefit the market.
Peter Williams, executive director of IMLA, commented: “The Help to Buy mortgage guarantee has breathed new life into the market and opened the door to more prospective homeowners without sacrificing standards when it comes to affordability checks.
“It is encouraging to see more lenders offering 95% LTV products outside of the scheme – but it would be a big gamble to rely on this continuing without the boost that the government has brought to the first time buyer market.
“Homeownership continues to fall, especially among younger adults, and letting Help to Buy expire without a permanent replacement will be another nail in the coffin of the ambitions of many people to own their own home.
“In addition, if the FPC was to consider action in 2015 on the scheme, we would expect this to be supported both by strong evidence and full consultation rather than a sudden intervention. With a stabilising housing market, the pressure to act is reduced – and with access to homeownership so evidently a continuing problem, our hope and expectation is that the FPC will not act on impulse.”
Patrick Bamford, director – mortgage insurance Europe for Genworth, agrees. "It is wishful thinking to expect that, as a nation, we can significantly increase house building or keep homeownership open to the majority without making loans available to borrowers with deposits of 5% or 10%. Generations of first-time buyers have relied on lenders' willingness to lend at up to 95% LTV while builders will only build if potential customers are able to secure the mortgage finance they need in order to buy.
"Government intervention, in the form of Help to Buy 2, has certainly acted as a catalyst for product growth and increased lender appetite in the high LTV marketplace. But the post-HTB2 environment remains uncertain, and there is no guarantee that product supply will hold at current levels when the scheme finishes at the end of 2016.
"It is positive that lenders operating outside the scheme, such as many in the building society sector, are using private mortgage insurance in order to remain active in this part of the market. Even so, we should all recognise the need to introduce long-term measures which can address the difficulties those with small deposits still have in securing mortgages. This is not a short-term problem that is going to disappear in the next 18 months and therefore requires an approach which looks beyond this timescale.”
