With the equity loan portion of Help to Buy already heralded as a success this appeared to be the perfect time to deliver some of the detail which would presumably allow all stakeholders to engage with the guarantee, which involves a £12bn contingent liability for the taxpayer.
Although some details have been shared with some lenders, there has been no publicly available detail on the four key constituent parts of the scheme, namely the commercial fee, the criteria, capital relief and the exit strategy.
While Lloyds Banking Group has already come out and publicly committed to its involvement, others have made clear that capital relief and the fee will play the leading role in whether they join the scheme or not.
Clearly, this puts pressure on the government to resolve these points as soon as possible, including pressure to design a fee structure which encourages lenders to join. This pressure creates conflict with the need to develop a fee structure that protects the taxpayer from any losses arising from the scheme in the short, medium and long-term.
The positive point about the scheme is that guarantees do work to encourage and facilitate high LTV lending. However, it’s a big disappointment that the government is not working to involve a private industry that already exists, namely the private mortgage insurance market, which has abundant capacity.
There are a number of ways that the scheme could be improved through exploring how the private industry could reduce the risk to the exchequer by sharing some of that risk, as well as helping to ensure the standards set by the scheme are maintained by lenders on an ongoing basis.
It is also critical that the government scheme – which is intended to be temporary – doesn’t drive out the private industry. To protect against this, it will be vital for there to be some move towards a level-playing field for the private industry – for example on capital relief.
Without a private industry still active in 2016/2017, it is hard to see how the government will be able to withdraw the sovereign guarantee, since the capital pressure on banks is only going in one direction – up.
Patrick Bamford is business development director of mortgage insurance at Genworth
