14th October 2013

Help To Buy – What’s the problem?

The industry reaction to the Governments Help to Buy Scheme 2 (HTB) has surprised and puzzled me. It has come in for criticism from all corners for fuelling a possible housing bubble.

We all want the economy and the mortgage market to get back to some sort of ‘normal’ and far as I can see, HTB only provides the same cover as Mortgage Indemnity Guarantee did in the 1990’s.

House prices in the UK are not driven by Mortgage Guarantee Schemes they are driven by interest rates and QE and if Mark Carney keeps interest rates down at zero for too long we will have a new housing bubble. The HTB scheme can give him the opportunity to normalise interest rates without causing a crash and further problems for the banks.

One of the problems I do see with the way the banks have launch HTB is that they are trying to make too much money out of taxpayer assistance. Halifax have launch HTB with a 5.19% 2 year fixed rate but Clydesdale Bank who are not taking part in HTB have a 95% 3 year fixed at 4.99%. I can’t see these deals causing any problems of inflating house prices but I can see lenders taking advantage of low interest rates and taxpayer support to increase profits.

Like most things in the financial markets these days the mortgage industry is driven by political initiatives and HTB is a case in point. George Osborne is trying to ‘buy’ votes as is Ed Milibane with his ‘Energy Cap’.

It is no wonder that everyone is now using HTB as a political football to push their particular cause. House Builders want to relax planning controls, lenders want to make more money and low interest rates, developers want house prices increases and politicians want your vote.

The important thing for mortgage brokers to focus on is getting their clients a better deal and HTB should assist in doing just that.

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Frank Eve

Managing Partner - Frank Eve Consulting

Oct 2013

Mortgages