This blog has been purposefully written before the budget – not because I anticipate it will be a ‘damp squib‘ for the housing and mortgage markets (far from it) but because I wanted to review what I think is required, in terms of government intervention, before seeing what is announced.
In a sense, and judging by the newspaper reports, we already know what is coming. A stamp duty extension looks inevitable, although the exact detail around it remains up in the air, and we’ve already been told that the government will effectively introduce ‘Son of Help to Buy 2‘ – a new mortgage guarantee scheme offered to lenders in order to help bring back higher, notably 95%, LTV mortgages.
Are both these elements welcome? Absolutely. The arguments for a stamp duty extension are well-worn, and need not be repeated here, but just to say that the devil will be in the detail, and the government might want to be careful about introducing an extension that can be accessed by thousands of new purchasers.
So, what about the mortgage guarantee element? Well, there’s no doubt that the market has suffered from a dearth of high LTV options since the first lockdown last year.
It’s my understanding that the lenders have specifically asked for a resurrection of the guarantee element of Help to Buy in order to help them bridge that risk gap that they have deemed too wide to offer 95% LTV loans themselves.
As we all know, there has been a move towards greater numbers of 90% LTV products, and pricing has become keener, but (as I write) the only 5% deposit options require parental or guarantor support, and there doesn’t appear to be any further movement in that direction, without a government guarantee.
There is, of course, a point to be made here, in that lenders could have opted for a private mortgage insurance option if they were that desperate to offer higher LTV loans over the past six months.
The fact they haven’t perhaps tells you that there wasn‘t a significant appetite to be active in this space, especially when for many lenders they have for the most part operated (and done a good job) at maximum capacity with a majority of underwriting and processing staff continuing with WFH.
Not to put too fine a point on it, they have done relatively well opting for, what they deem, lower-risk borrowers, and as commercial enterprises that is completely their prerogative.
What may well have happened is that the government itself has asked lenders to reconsider their high LTV product offerings, and they have pushed back in suggesting the only way they will move this way – in the short-term – is via a government guarantee.
It will be interesting to see what kind of take-up there will be and initially I wondered whether loans generated via the scheme would only be available to first-time buyers.
Reading up on this however it appears it will be open to existing homeowners as well, but there are clearly questions about the level of lending that will be completed, even with the scheme.
Perhaps lenders utilising the guarantee will deliver a competitive market and, as we did see when Help to Buy 2 was introduced, this gave other lenders (many not even using the scheme) to look at other insurance options and a much better 95% LTV market was able to be forged.
These types of mortgages are undoubtedly required – talk to most people about how they got on the property ladder and they are likely to say via a high LTV product, although there are clearly other issues at play here which will work differently in today’s environment.
And that leaves a number of questions for this budget and this government because even with access to a 5% deposit, the average buyer is still going to need £11.5k – based on Nationwide’s recent average house price figure. Of course, for many, it’s better than £23k for a 10% deposit, but it is still substantial.
But, other issues also remain, not least the average income to average house price which used to be x2/x2.5 and, in many regions of the country is now at least x6. Plus, of course, there is much to say that the government’s intervention merely increases demand, which given the lack of supply, will only drive prices up further.
It will not take a genius to work out that property supply is perhaps the fundamental driver in all this.
Commitments to increase supply – particularly ‘affordable‘ housing – over the years have come to little. We, as a country, have certainly not met the 250k new properties required each year, and with each year that has failed to be achieved, we have fallen further and further behind.
A stamp duty extension and a mortgage guarantee scheme are not to be turned down, of course, and hopefully they will act as a positive encouragement to housebuilders to accelerate their building programmes, but part of me can’t help feeling that the biggest benefit the government could deliver would be in supporting a huge expansion of property supply in all regions with broader more far reaching/long-term housing policy actions.
And a much further and wider commitment to ensure those plans and resultant properties are in the ‘affordable‘ range.
Without that extra supply, it may ultimately not matter to many would-be buyers that they can now get a low-deposit mortgage, because there simply won’t be the properties available to buy with it. That needs to be fixed and it will take the government to do it.
