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The battles raging behind Help to Buy

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  • 15/07/2013
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The battles raging behind Help to Buy
The Help to Buy scheme has been a politically charged proposition from the very beginning.

George Osborne’s Budget announcement caught many mortgage lenders unaware with the government engaging in very little discussion ahead of the equity loans scheme’s launch on April 1 this year.

The Chancellor was forced to enter frantic negotiations to placate the understandably annoyed industry but even then only Barclays and state-owned Lloyds Banking Group had products ready for the launch date.

At least the government has learned from its mistakes and has engaged with the industry over the exact make-up of the Help to Buy mortgage guarantee scheme ahead of the full details of the scheme being released later this month.

The lenders involved will be required to pay a fee to the government which will cover administrative costs and expected losses. This essentially puts the risk back in the court of the lenders and makes the government unlikely to lose money, at least in the short-term.

One senior figure involved in the discussions confided that it is only the carrot of relaxed capital adequacy requirements that has kept lenders interested.

Another commentator at a high street lender said that conversations between the industry, the Council of Mortgage Lenders and the Treasury have centred on the fees involved. The initial agreement on fees is likely to be for just the first of the scheme’s three years, with further discussions to follow. This poses a risk to the government that lenders could withdraw from the scheme if it is not proving profitable enough.

Already the government has had to concede that it will foot the advertising bill from its own back pocket rather than charging lenders for that too. A big campaign is expected in January as it is banking on inflated house prices, which the scheme will inevitably cause, as the route to success at the next general election.

The lack of detail on Budget day prompted much speculation over which   borrowers would be eligible to access the equity loans. It is highly likely that foreign buyers, or at least EU member citizens, will be freely able to access the scheme, contrary to previous statements issued by the government, just as they’ve been eligible to access NewBuy.

But the issue around Help to Buy funding second homes is something the government has been able to address. Plans suggest customers wishing to use the scheme will be forced to sign a declaration stating they have no interest in any other properties – despite the fact the lenders under normal conditions would be comfortable lending to those with a home already.

Those in power know it is highly unlikely a Conservative-Liberal Democrat coalition will remain in place after the May 2015 election and this was the reason the scheme has been timed to end in December 2016.

There are real fears that the end of the scheme will cause a drop in house prices, similar to the dip that followed the end of the Stamp Duty holiday. Commentators suggest if the problem is delayed until the next parliament, it can be brushed under the carpet – at least for now.

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