This article by Rupert Jones of theguardian on October 5th, 2013 tells us the criticism from experts regarding the second part of the government's help to buy scheme.
A range of government-backed 95% mortgages are set to go on sale next week after ministers fired the starting gun on a new property scramble.
Two partially state-owned banks, Royal Bank of Scotland and the Lloyds Banking Group, will offer the loans initially, and millions of people will potentially be eligible to sign up.
Under the controversial Help to Buy scheme, homebuyers will only need to put down a 5% deposit – and it is open to existing owners as well as first-time buyers.
What is more, there are no limits on how much you can earn and it
applies to both old and new-build properties costing up to a generous
£600,000.
RBS and its NatWest
arm seem to think this second part of the Help to Buy scheme, which is
being launched three months earlier than planned, has the potential to
be the financial equivalent of the Harrods sale. They say customers will
be able to visit any of their 2,000 branches or ring up, and add that
opening hours will be extended at peak times "to help with customer
demand".
Homebuyers were this week awaiting details of the deals –
in particular, how attractive the pricing will be – amid speculation
that the scheme could push down rates on 95% mortgages from their
current levels of between 5% and 6% to perhaps as low as 4.5%, as well
as increasing the choice of products available. That could lop almost
£100 a month off the typical payments of someone taking out a £160,000
mortgage.
RBS and NatWest say they will offer "a range of competitive 95%
mortgages" to first- and next-time buyers. These will initially be
available in branches and over the telephone, and later via mortgage
brokers. Halifax, part of the Lloyds group, will also be offering deals from launch; these will be available via branches and brokers. Lloyds Bank will participate from January, while other lenders such as Santander and Nationwide have yet to confirm whether they will take part.
While the scheme won't become fully operational until January, people will be able to start applying from next week,
and once their mortgage is approved the funds will be available
straightaway – they won't have to wait until the new year to complete on
their home purchase.
There has been fierce debate about whether the scheme will hand a vital lifeline to homebuyers or simply drive house prices
even higher, but what is undeniable is that this is a huge and
potentially risky venture for the government. It is partially
guaranteeing £130bn of low-deposit mortgages, which ministers have
claimed could translate into assistance for well in excess of 500,000
homebuyers over three years.
That is a lot of people potentially
being helped but, even so, there are fears demand could massively exceed
supply. Santander issued research yesterday claiming 10% of Britons –
equivalent to 5.1 million people – believe they are likely to buy a
property in the next 12 months. A third of these, 1.7 million, said
they planned to use Help to Buy.
In reality, some of these people
would be locked out of the scheme because, for example, they are buying a
property to rent out, or a second home, both of which are excluded
from Help to Buy, or they don't meet the requirements on income and past
credit history – but this still suggests that fears of a stampede of
applicants may not be misplaced.
Phase two of Help to Buy is about
encouraging banks and building societies to offer more mortgages that
only require a small deposit (at least 5%) by giving them the
opportunity to buy a guarantee on the "top slice" of the home loan – the
bit between 80% and 95%. If a borrower gets into financial difficulty
and their property is repossessed, the government will cover a chunk of
the lender's losses.
Ministers are making available £12bn of guarantees to lenders, but
the latter will have to pay a fee for each mortgage underwritten.
The scheme has come in for harsh criticism from some commentators. On Thursday, Howard Archer, chief UK economist at IHS Global Insight,
warned: "There is a mounting danger that house prices could really take
off over the coming months." He was speaking after figures from Halifax
revealed that house prices are rising at their fastest annual pace for
more than three years.
• A free Help to Buy show is taking place
today (5 October) at the Glow events venue at the Bluewater shopping
centre, Kent, between 10am and 4pm. The event is aimed at people in
Essex, Kent, Sussex and south London. Go to glowbluewater.co.uk for more.
Article Source: http://www.theguardian.com/money/2013/oct/05/help-to-buy-property-scramble
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