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
Showing posts with label lenders. Show all posts
Showing posts with label lenders. Show all posts
Tuesday, 8 October 2013
Tuesday, 27 August 2013
Opinion Stands Divided Over UK Housing Programme
This August 26, 2013 article by Julia Werdigier of gulfnews.com reveals the ongoing debate about the help to buy scheme housing programme by the government.
London: Depending on where one stands in the debate on the rising cost of housing in Britain, Paul Thomas and Abigail Walker, first-time home buyers, are either part of the solution or part of the problem.
To buy a £248,000 (Dh1.4 million) two-bedroom house in Oxfordshire, west of London, Thomas, a 38-year-old electrician, and his 25-year-old partner, Walker, who works in an accounting office, are making use of a government programme called Help to Buy. They are making a down payment of only 5 per cent from their own funds, and the government is giving them an interest-free loan to cover the other 20 per cent of the down payment.
The government of Prime Minister David Cameron has cast the programme as a way to stimulate the country’s sluggish economy by helping consumers buy homes they could not otherwise afford. But critics say it could lead to a housing bubble and a spate of problem loans on which the government could be left to make good.
Under Help to Buy, introduced in March, the government either offers interest-free credit or guarantees part of the property loan. The resulting higher demand for homes is supposed to fuel construction and aid the economic recovery.
“Help to Buy is a dramatic intervention to get our housing market moving,” George Osborne, the chancellor of the Exchequer, told Parliament in presenting the plan. “That is a good use of this government’s fiscal credibility.”
Market pick-up
But during the last month, the outcry has grown from some lawmakers and economists, who are demanding an early end for Help to Buy. They note that the housing market was already picking up and warn that the plan could create a housing bubble that would likely burst when the programme expires in 2016, while driving price increases that will make homes even less affordable for many in the meantime
Critics also question the wisdom of giving people a mortgage with a down payment of as little as 5 per cent when lenders are under pressure from regulators to reduce the riskiness of loans.
The plan as announced in March by Osborne came in two parts. The first piece, in place since April, is limited to the purchase of newly built homes. The government offers a five-year, interest-free loan for 20 per cent of the home value to put toward the down payment. Thomas and Walker are getting help through that portion of the programme.
The second and more contentious part of the plan, which is to start in January, allows anyone to buy a house with only a 5 per cent down payment. The government would then guarantee an additional 20 per cent of the bank loan for any property worth as much as £600,000, effectively passing the risk to the government from the lender.
“Using the government’s balance sheet to back these higher loan-to-value mortgages will dramatically increase their availability,” Osborne said when he presented the plan to Parliament in March.
Thomas and Walker had recently moved in with Walker’s mother in Oxfordshire to save money for a deposit, which they said would have taken them 10 years to come up with on their own.
But now they plan to move into their newly built home in the autumn. Instead of a £62,000 down payment on the purchase price of £248,000, they had to put down only £12,400. Help to Buy is coming up with the rest.
“It really put a smile on my face,” Thomas said.
Motive behind scheme
Some economists said making voters like Thomas happy was the main motive for Osborne’s plan. About two years before the next general election, and with recent opinion polls showing the opposition Labour Party neck and neck with Osborne’s Conservative Party, Osborne is betting on the housing market. Not being able to afford a home is “a blow to the most human of aspirations,” he told Parliament.
The government says the programme has been a success so far. More than 10,000 people have reserved newly built homes since April, and the number of first-time buyers was at the highest level since 2007, the government said this month.
Barratt Developments, one of Britain’s largest house builders, said sales had risen 35 per cent in the three months through the end of June, from the comparable period last year, with “a significant amount” of the upturn a result of Help to Buy.
But Britain’s housing market had already been improving. Helped by record low interest rates and demand from foreign buyers, especially in London, prices of homes nationwide rose 4.6 per cent in the three months to July, the highest annual increase since August 2010, according to the mortgage provider Halifax. In London, the increase was 8.1 per cent.
Compared with the United States or some countries in Southern Europe, Britain’s housing market downturn after the financial crisis was relatively mild. Home prices in Britain fell less steeply from their 2007 peak than those in the US because of a combination of mortgage laws and a shortage of new homes.
London home prices
Home prices have increased so much in London that the average first-time buyer now has to spend half of his net salary on mortgage payments, according to the Nationwide Building Society.
Osborne and the Bank of England’s new governor, Mark J. Carney, have rebutted criticism of the housing programme, saying Britain was still far from a housing bubble.
But behind the scenes at the Bank of England’s Prudential Regulation Authority, which is in charge of ensuring the safety of banks, there are concerns that Help to Buy conflicts with the regulator’s aim of reducing risk in the banking sector and applying stricter lending rules, according to a senior bank official, who spoke on the condition of anonymity.
Banks that have signed up for the programme include the Lloyds Banking Group, in which the government continues to hold a stake after a bailout, along with Nationwide and Santander.
Those banks and others are in talks with the government about how much lenders will have to pay to participate in Help to Buy and how much capital the banks will have to hold for those loans.
Many economists are asking why, if banks are unwilling to take the extra risk of making such loans without government inducements, the government should be expected to backstop the programme.
Andrew Brigden, an economist at Fathom Consulting, said the programme would make it easier for banks to make riskier loans. Help to Buy is a “reckless scheme” because it “uses public money to incentivise the banks to lend precisely to those individuals who should not be offered credit,” Brigden said.
But Osborne has argued that the programme is fixing a mortgage market that has been discriminating against people who can afford the monthly mortgage payments but do not have enough savings for a down payment. Passing part of the lending risk from the banks to the government does not worry him, he said.
“Because it’s a financial transaction, with the taxpayer making an investment and getting a return,” Osborne said, “it won’t hit our deficit.”
Article Source: http://gulfnews.com/business/property/international/opinion-stands-divided-over-uk-housing-programme-1.1224135
Under the plan, the government either offers interest-free credit or guarantees part of the property loan.
London: Depending on where one stands in the debate on the rising cost of housing in Britain, Paul Thomas and Abigail Walker, first-time home buyers, are either part of the solution or part of the problem.
To buy a £248,000 (Dh1.4 million) two-bedroom house in Oxfordshire, west of London, Thomas, a 38-year-old electrician, and his 25-year-old partner, Walker, who works in an accounting office, are making use of a government programme called Help to Buy. They are making a down payment of only 5 per cent from their own funds, and the government is giving them an interest-free loan to cover the other 20 per cent of the down payment.
The government of Prime Minister David Cameron has cast the programme as a way to stimulate the country’s sluggish economy by helping consumers buy homes they could not otherwise afford. But critics say it could lead to a housing bubble and a spate of problem loans on which the government could be left to make good.
Under Help to Buy, introduced in March, the government either offers interest-free credit or guarantees part of the property loan. The resulting higher demand for homes is supposed to fuel construction and aid the economic recovery.
“Help to Buy is a dramatic intervention to get our housing market moving,” George Osborne, the chancellor of the Exchequer, told Parliament in presenting the plan. “That is a good use of this government’s fiscal credibility.”
Market pick-up
But during the last month, the outcry has grown from some lawmakers and economists, who are demanding an early end for Help to Buy. They note that the housing market was already picking up and warn that the plan could create a housing bubble that would likely burst when the programme expires in 2016, while driving price increases that will make homes even less affordable for many in the meantime
Critics also question the wisdom of giving people a mortgage with a down payment of as little as 5 per cent when lenders are under pressure from regulators to reduce the riskiness of loans.
The plan as announced in March by Osborne came in two parts. The first piece, in place since April, is limited to the purchase of newly built homes. The government offers a five-year, interest-free loan for 20 per cent of the home value to put toward the down payment. Thomas and Walker are getting help through that portion of the programme.
The second and more contentious part of the plan, which is to start in January, allows anyone to buy a house with only a 5 per cent down payment. The government would then guarantee an additional 20 per cent of the bank loan for any property worth as much as £600,000, effectively passing the risk to the government from the lender.
“Using the government’s balance sheet to back these higher loan-to-value mortgages will dramatically increase their availability,” Osborne said when he presented the plan to Parliament in March.
Thomas and Walker had recently moved in with Walker’s mother in Oxfordshire to save money for a deposit, which they said would have taken them 10 years to come up with on their own.
But now they plan to move into their newly built home in the autumn. Instead of a £62,000 down payment on the purchase price of £248,000, they had to put down only £12,400. Help to Buy is coming up with the rest.
“It really put a smile on my face,” Thomas said.
Motive behind scheme
Some economists said making voters like Thomas happy was the main motive for Osborne’s plan. About two years before the next general election, and with recent opinion polls showing the opposition Labour Party neck and neck with Osborne’s Conservative Party, Osborne is betting on the housing market. Not being able to afford a home is “a blow to the most human of aspirations,” he told Parliament.
The government says the programme has been a success so far. More than 10,000 people have reserved newly built homes since April, and the number of first-time buyers was at the highest level since 2007, the government said this month.
Barratt Developments, one of Britain’s largest house builders, said sales had risen 35 per cent in the three months through the end of June, from the comparable period last year, with “a significant amount” of the upturn a result of Help to Buy.
But Britain’s housing market had already been improving. Helped by record low interest rates and demand from foreign buyers, especially in London, prices of homes nationwide rose 4.6 per cent in the three months to July, the highest annual increase since August 2010, according to the mortgage provider Halifax. In London, the increase was 8.1 per cent.
Compared with the United States or some countries in Southern Europe, Britain’s housing market downturn after the financial crisis was relatively mild. Home prices in Britain fell less steeply from their 2007 peak than those in the US because of a combination of mortgage laws and a shortage of new homes.
London home prices
Home prices have increased so much in London that the average first-time buyer now has to spend half of his net salary on mortgage payments, according to the Nationwide Building Society.
Osborne and the Bank of England’s new governor, Mark J. Carney, have rebutted criticism of the housing programme, saying Britain was still far from a housing bubble.
But behind the scenes at the Bank of England’s Prudential Regulation Authority, which is in charge of ensuring the safety of banks, there are concerns that Help to Buy conflicts with the regulator’s aim of reducing risk in the banking sector and applying stricter lending rules, according to a senior bank official, who spoke on the condition of anonymity.
Banks that have signed up for the programme include the Lloyds Banking Group, in which the government continues to hold a stake after a bailout, along with Nationwide and Santander.
Those banks and others are in talks with the government about how much lenders will have to pay to participate in Help to Buy and how much capital the banks will have to hold for those loans.
Many economists are asking why, if banks are unwilling to take the extra risk of making such loans without government inducements, the government should be expected to backstop the programme.
Andrew Brigden, an economist at Fathom Consulting, said the programme would make it easier for banks to make riskier loans. Help to Buy is a “reckless scheme” because it “uses public money to incentivise the banks to lend precisely to those individuals who should not be offered credit,” Brigden said.
But Osborne has argued that the programme is fixing a mortgage market that has been discriminating against people who can afford the monthly mortgage payments but do not have enough savings for a down payment. Passing part of the lending risk from the banks to the government does not worry him, he said.
“Because it’s a financial transaction, with the taxpayer making an investment and getting a return,” Osborne said, “it won’t hit our deficit.”
Article Source: http://gulfnews.com/business/property/international/opinion-stands-divided-over-uk-housing-programme-1.1224135
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