Last week, Helen Pierson, head of business development at Mortgage Bureau, warned that it was an area of the market which had not been sufficiently considered by lenders, with thousands of borrowers now effectively mortgage prisoners, unable to move to new deals.
Mortgage Solutions polled brokers on how much demand they are seeing for Help to Buy equity loan remortgages. More than 10% reported seeing several cases a week, while a further 10% said they are seeing several cases every month. More than a third are receiving occasional enquiries from borrowers.
The Help to Buy equity loan scheme was launched in 2013, and includes a five-year interest-free equity loan worth up to 20% of the purchase price from the Government. Borrowers who joined the scheme at the outset are now approaching the time when they will start having to pay interest on that loan.
Clients feel restricted
Rob Clifford, group commercial director at MoneyQuest, said that his firm has been seeing several cases a month, and warned that it remained a “restrictive market” with only a small number of lenders offering a remortgage product for equity loan borrowers.
He continued: “There is still some choice available to these clients if they wish to obtain a more attractive product but many borrowers may feel that they are restricted to staying with their existing lender.”
Do they want to buy a bigger share?
Andy Frankish, at Mortgage Advice Bureau, said that his firm is planning for an increase in these cases, simply due to the time that has passed since the products were first launched.
He said that brokers who had sold these deals needed a “robust programme” for contacting their clients, and the in depth work required to establish the borrower’s appetite for taking on a larger slice of equity in the property.
He continued: “The obvious benefit of buying a bigger share now is that if property prices do increase, you benefit fully. But some people may not be in a position to buy a further share as house prices have been fairly stable since the launch of the equity loan, so there’s not been a lot of equity increase there. But we have to give them all of their options, rather than just pointing to a product transfer.”
Mike Hodkinson, adviser at Xact mortgages, agreed, saying: “It may not be correct for a client to have a product transfer, there may be something else better for them out there. There still has to be advice, you can’t just assume the product transfer will be the best bet.”
Every lender could make a difference
Daniel Mumford, managing director of Grange Mortgage and Protection Services, said that a lot of lenders are offering internal product transfers, so borrowers are not “completely prisoners”, but he did warn that the limited amount of choice was a concern.
He noted that a lot of the clients he was seeing were able to clear the equity loan, which made those cases much easier to place.
He added: “Even if you had one or two more of the major players putting something in place, that would make a big difference for everyone.”
Hodgkinson agreed, saying: “I’d applaud any other lenders that want to come to the market with products. It has to be the way forward.”