Over 100,000 households have taken advantage of the scheme since it launched in April 2013, with the first wave of borrowers now starting to reach the end of their initial mortgage product term.
Helen Pierson, head of business development, Mortgage Bureau, said: “It is a big area of the market which no one has really thought through. In excess of 100,000 households have these mortgages and there is still three years to go [on the loan element], so they are trapped, effectively mortgage prisoners. These customers deserve better, they deserve advice, but they are being let down.”
Borrowers using the scheme can take advantage of a government loan worth up to 20% of the value of a new-build property, or 40% in London, plus their own 5% deposit.
However, while the government celebrates the success of the scheme’s take-up, Help to Buy equity loan homeowners now face the harsh reality of a constrained market offering little product choice. Around 20 lenders offer equity loan purchase mortgages, but less than a quarter of these offer borrowers the option to remortgage.
With a lack of options to discuss with their clients, brokers say they are losing out to lenders offering to product switch the borrower. This may help to keep monthly loan costs down, but a product transfer cuts out a crucial opportunity to give the borrower advice on how to manage the government loan.
For the first five years of the life of the government loan, the borrower is not charged monthly interest. In year six, the borrower is charged 1.75% of the loan’s value, monthly, which increases every year in line with the Retail Price Index, plus 1%.
“We need big players to come into this market”
Mike Hodgkinson, mortgage adviser, xact mortgages, said: “The new-build broker community is really frustrated because we have clients we can’t help. We can’t help our own clients who we have placed with lenders like NatWest and Nationwide because they don’t offer retention products which brokers can advise on. Lenders are offering rates we can’t compete with but are not giving advice on the equity loan element of the mortgage. We need the big players to come into this market and offer Help to Buy remortgages which will give us options to offer our clients.”
Leeds and Skipton Building Societies, TSB, Halifax and, from today, the Newcastle all offer remortgage products and Barclays is weeks away from launching its remortgage proposition.
Mortgage Solutions approached the remaining large mortgage lenders to find out if they had plans to launch remortgage products for equity loan borrowers from other lenders. Nationwide, NatWest, HSBC and Santander do not offer equity loan remortgages. Nationwide said it had no plans to develop a range. Coventry’s spokeswoman said it does not offer any of the Help to Buy products, while Virgin confirmed it planned to review its options to enter the market for remortgages.
“No one is looking at the client’s circumstances now and in the future”
Nationwide, one the biggest supporters of the scheme for purchase applicants and NatWest will only allow borrowers to go direct to them for a product switch.
Pierson said: “If we are not allowed to be involved, and the client simply switches products, the risk is the client will be taking out an execution-only mortgage.” She added: “No one is looking at the client’s circumstances now and in the future, because the lender is not giving advice.”
A spokesperson for Nationwide said advice was freely available to those who wanted it, which would include a review of the equity loan. A NatWest spokesperson said it offered and guidance, with further information available on its website and on the government’s website.
Hodgkinson said there was a pent up need for equity loan remortgage options, and an onerous legal process for any borrower who wanted to pay off part of their equity loan during the remortgage.
Unlike the highly competitive mainstream remortgage market, where lenders lure in borrowers with fee-free products and a fast legal process, equity loan borrowers are being charged in excess of £700 plus administration costs and face a two-month wait while the government loan is assessed.
The Homes and Communities Agency (HCA), the government department responsible for issuing the equity loans, appointed financial services software firm Target to manage its back book. Firms trying to remortgage their clients away from their existing lender, have complained of delays of up to two months to release documents vital to the remortgage, particularly when the borrower is trying to pay back some of the loan. Target admitted it had struggled with service levels in the last half 2016, having been taken by surprise that, just over two years into the scheme, most borrowers would want to apply for a remortgage.
A spokesperson for Target said: “In the second-half of 2016 we encountered some service problems after receiving a higher than expected volume of enquiries relating to HCA loans. We doubled the size of our dedicated HCA team in response. Those issues are now resolved and all services are being delivered as per the terms of our SLA [Service Level Agreement].” Target would not disclose its SLA targets.
Skipton and Leeds Building Societies, both supporters of the Help to Buy equity loan remortgage market, said they are committed to improving the remortgage process. Alex Beavis, senior mortgage products manager, said Skipton was aware of the problems brokers and customers had experienced with Target and would encourage further conversations between lenders, intermediaries and the HCA to smooth the process and provide customers with the remortgage experience they deserve.
The HCA said it would continue to monitor Target’s performance.
Opportunities to mould a market in its infancy
Legal and General’s new build manager, Craig Hall, is campaigning for more lenders to join the equity loan market and offer products with incentives which go some way to absorbing the additional expenses a Help to Buy borrower incurs.
“Currently, £250 cashback is the norm, which doesn’t go a long way to offsetting the legal and admin costs borrowers must stump up,” he said. Hall wants all stakeholders in this market to work together, to create great products from the customer’s perspective.
Hall wants an intermediary to be brought in when each product expires to ensure a smoother, more competitive process.
“This is still a young market,” he said. “Maturities are coming up now, offering lenders the opportunity to create a market which is vibrant, competitive and easy to use. A customer must be able to move from A to B, easily, cheaply, get advice along the way and pay down the equity loan.”
NatWest plans to offer retention products through brokers later this year.