In news that will literally surprise no one, over 250,000 people have already opened Help to Buy ISAs since they were launched in December. That’s one account opened every 30 seconds, or more than 3,000 a day, as people take advantage of the £50 bonus for every £200 deposited each month.
As we all know the maximum government top-up is £3,000 and this is certainly not to be sniffed at, given that it also comes with interest on top from the provider. One of the major stumbling blocks that first-timers need to overcome is finding the necessary cash to fund their deposit, so any scheme that provides an incentive for individuals is to be applauded.
However, 250,000 new accounts (and no doubt the others that will be opened subsequently) does not necessarily translate into the same number of new first-time buyers.
Firstly, is the money saved alongside with the bonus likely to be enough for a deposit? Where might house prices move in the years it takes to save for that full bonus amount? Given the ongoing supply issues – and we must also wonder whether there will be the right kind of properties available for these potential purchasers – one must still anticipate ongoing increases.
That being the case, how much might that deposit be worth? Less than 5% of a property’s price? Even if it is 5%, what might mortgage availability look like at that point? Will there be a plethora of low-deposit mortgages to choose from in order to get into that first home, or will we have slipped back to a dwindling pool of products to choose from? Not forgetting whether the individual can actually afford them.
At the moment, we could go one of two ways. Certainly, on the back of Help to Buy 2 we saw a momentum surge in the supply of high loan-to-value (LTV) products, not just from those within the scheme, but those operating outside it. Now however, the number of borrowers accessing higher LTV mortgages appears to be moving in the other direction.
It’s certainly a truism in the mortgage market that while product numbers are important, it’s the appetite of the lender to offer loans in that space which will determine the ability of borrowers to get the loan. It would seem that at present and regardless of numbers, the major banks have been pulling back from the high LTV lending segment.
And with Help to Buy 2 set to finish at the end of 2016, we are in a position where the future looks somewhat uncertain. No doubt the government would like lenders to keep lending in this space but the lenders might ask, what are our incentives given the greater level of risk and the greater capital requirements?
So, while Help to Buy ISA account holders might be rejoicing at the thought of their bonus payments, if we continue in the same vein with lower lending at higher LTVs, then these good feelings will need to be tempered by some harsh realism. Yes, a government-backed Osborne bonus is nice but without a corresponding commitment to maintain (and increase) lending in the high-LTV space, that ISA money could be left sitting in those accounts for many more years to come.