At Help to Buy application, lenders will have to show borrowers had an affordability test, test all loans against rising interest rates and verify every borrower’s income. Lenders will also have to demonstrate borrowers have no history of credit management problems.
Osborne suggests the taxpayer will also be protected by other lender-focused conduct rules.
The government has outlined nine different Loan to Value (LTV) bands, broken down into 80-85%, 85-90% and 90-95%, split down further into purchase and remortgage brackets. If a lender plans to lend in any of the nine high LTV bands outlined under the scheme, all mortgage lending at that LTV band must be Help to Buy. Osborne said this way, lenders cannot only use the scheme for their riskiest loans.
So far both Halifax and RBS/NatWest have launched at a single band of 95% LTV for Help to Buy, limiting lending exposure to the scheme at a higher LTV.
On fees, the scheme aims to be self-financing and compliant with EU guidance on State Aid. It has three elements including administration cost, cost of capital and expected losses.
As exclusively revealed by Mortgage Solutions last week, the 2014 fee levels to be charged as a percentage of the loan are:
• 90 basis points for loans with a loan to value of more than 90% and less than or equal to 95%
• 46 basis points for loans with a loan to value of more than 85% and less than or equal to 90%
• 28 basis points for loans with a loan to value of at least 80% and less than or equal to 85%
Larger lenders will be charged a tailored capital relief fee with smaller lenders expected to pay a more standardized charge.
Osborne said all fees will be reset on an annual basis reflecting changes in the macro-economic forecast and using data on mortgages already guaranteed under the scheme. Lenders will be given the final fee for the following year three months in advance.
Osborne has also asked the Financial Policy Committee to monitor and invigilate the scheme from September 2014 and raise the alarm if the market begins to overheat. At that time, the FPC will also advise on whether the house price cap and the capital fee charged to lenders is still appropriate.
See all today’s Help to Buy coverage.