But few have asked what happens if some of the Help to Buy loans go wrong.
Help to Buy is in the unusual position of both opening up the mortgage market to those otherwise deemed too risky, and acting with the restraint expected by any scheme based on taxpayers’ money. In other words, the government needs to make sure its investment is secure.
In June, the think tank ResPublica questioned how many UK borrowers would be able to pay if they suddenly became severely ill or redundant. It identified a “protection gap” left by the discrediting of Payment Protection Insurance and urged bailed-out banks Lloyds and RBS to lead the way in providing innovative products to protect against this risk.
One such product is the debt waiver. Developed in the US in the wake of the Great Depression, it means the lender’s commitment to forbearance is agreed with the borrower in the mortgage contract. The lender then insures themselves against the risk of these problems happening.
CUNA Mutual chief executive Paul Walsh, whose credit union provides debt waivers, says several UK building societies are increasingly interested using it to offer first-time buyer mortgages. He suggests it could also be applied to Help to Buy: “At the moment in Westminster there is a huge question mark. A lot of people are thinking, ‘How do we get our money back?'”
“Waiver can be integrated into the design of ethical or smart loans – such as first-time buyer mortgages – and we think it’s a safe, proven and low cost way of protecting the taxpayers’ seed capital for the Help to Buy program.”
But will Help to Buy borrowers really be struggling down the line? The government currently views debt waivers as a commercial decision for lenders. A Communities and Local Government spokeswoman told Mortgage Solutions: “The Help to Buy equity loan scheme builds on predecessor schemes, such as FirstBuy, which have a five year track record. From over 22,000 sales, there have only been 11 repossessions, which converts to a rate of 0.05%.”
The rate was consistent with previous schemes, she added, while Help to Buy borrowers also faced extra affordability checks.
As for all borrowers, there are other protections in place – the Pre Action Protocol for mortgage repossessions obliges lenders to prove they have exhausted all forbearance options before applying for a repossession order.
Still, however freshly scrubbed the Help to Buy borrowers are, no amount of affordability checks can prevent them from falling ill or being made redundant in ten years’ time.
Borrowers do need to take precautions to avoid their mortgage becoming a burden in the future. Whether by developing debt waivers or other protection products, this is a message on which the government should take a lead.
