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CML calls for greater clarity on Help to Buy

  • 27/03/2013
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CML calls for greater clarity on Help to Buy
The Council of Mortgage Lenders has called for greater clarity from the government on the scope and ambitions of its flagship Help to Buy scheme.

The Council of Mortgage Lenders said that the government needs to clarify which part of the market the scheme is targeting.

“The Treasury needs to be clear the objective is,” a spokesperson said.

“If it is looking to make more high LTV loans then in which case why not extend to remortgage, or is the scheme trying to extend housing transactions?”

Chancellor George Osborne announced the two-part Help to Buy scheme as part of his budget earlier in the month, compromising of an equity loan and mortgage guarantee scheme.

The latter part has been scrutinised over its potential to subsidise second homes and now a potential flaw in its remortgage side has been pointed out by lenders.

The scheme is designed to ensure that lenders cannot restructure the riskiest part of their existing loan book but customers will be able to remortgage their existing loan with another lender.

This has flared fears amongst lenders that a number of customers will simply move between lenders, reducing their monthly rates and preventing other borrowers from accessing the scheme.

The Treasury failed to respond to a request from Mortgage Solutions for further clarification.

A Treasury statement released after the Budget said: “There will be some types of remortgage transactions that will not be eligible for the scheme.

“In particular, a lender will not be able to access the scheme when a borrower is remortgaging a loan which is already part of the lender’s existing loan book. A borrower remortgaging with a new lending institution would, however, still be able to benefit from the scheme.”

CML director-general Paul Smee was questioned by a Treasury Select Committee on Monday about the possibility of a housing bubble and reckless lending.

“I think one must watch against this but in the present circumstances there are a lot of factors mitigating against a housing bubble,” he replied.

“First of all is the question of confidence. Whatever this scheme does people will still need the confidence to borrow. The idea that people will start mortgaging and remortgaging and that the pace will pick up significantly is probably overstated.

“Lenders also have new regulatory requirements to cope with, I don’t think this scheme should be seen as increasing the opportunity for irresponsible lending.

“I think if this scheme is to work safely it will bring forward purchases and enable people to enter into the housing market at an earlier stage than they otherwise would. That will free up the market and lead probably to more transactions.”

He went on to say that the Treasury must also make sure that Help to Buy reaches a gentle conclusion when the scheme expires at the start of 2017.

“One of the risks of housing incentive schemes, which we have seen with Stamp Duty holidays, is that they create spikes around the time they come to an end with lots of transactions happening right before and a period of dead calm thereafter.

“That is something we must try and avoid with this scheme, particularly with such a significant scheme such as the help to buy guarantee.

“I would hope that we will be in early discussions with officials about how the scheme can not fall off the edge of a cliff and can be managed down a very bracing but not precipitous exit route. That would seem to stop short term distortion in the markets.”

When asked whether the scheme could run beyond the three year timeframe Smee replied: “I would hope an intervention of this magnitude would not persist for much longer as I think it will have longer term distorting effects.”

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