Speaking at the New Homes Senate, Nick Parker (pictured), head of intermediary distribution at Aldermore, said: “I think from a new build perspective, direct Help to Buy replacements with equity loan features are more likely going to come from the bigger banks, they’re going to be the ones that have got the deeper pockets.
“Whereas if you look at for example those specialist lenders’ with securitisation and wholesale funding programs, they won’t want longer term returns in 20 to 25 years, their returns may need to be over a shorter-term than that.”
Help to Buy is an equity loan scheme launched by the government which allows first-time buyers to buy new build homes. Around five per cent of the purchase price is needed as a deposit and customers can borrow up to 20 per cent of the purchase price, or 40 per cent in London.
The next round of the scheme is available from April 2021 to March 2023.
Parker said that there was currently a bank in the market with a war chest of around £100bn to spend in the next year, and two and five-year fixed rates did not have margin to provide a good return on investment.
“It’s conceivable that they’re going to be looking at markets such as Help to Buy and how can they as a lender recreate it to look at long term sustainable capital growth,” he added.
Parker added that shared equity loan firms like Proportunity and Nested had piqued lender interest but there was still a lot of uncertainty around the space.
He said: “The private equity investment for secondhand resale properties at the moment is fine, it’s growing from a very low base but is getting attention. It’s interesting and I think there’s a lot of lenders out there that are just monitoring, engaging with those firms so they understand what’s on the table and there’s a few that are interested in sort of taking forward working with them.
“But it’s a lot of investment in changing your systems and changing the way in which you work when it’s really unclear what the size of that prize is going to be and what your potential market share of that is going to be as well.”
He said Aldermore was “taking a watching brief” currently on such schemes but was “open to exploring opportunities in the sector in the future”.
Buckinghamshire Building Society’s chairman Dick Jenkins said that not many smaller lenders participated in the Help to Buy scheme due to the “operational hassle” of joining the scheme was not worth the small number of cases that would come their way.
He said: “From our point of view the disappearance of Help to Buy won’t make a difference. But of course, there will be changes in the marketplace and that change will create an opportunity. For instance, firms like ours could see some people for whom we would be quite happy to lend 95 and 100 per cent loan to value.”
EPC ratings and affordability
Another “significant change” that will occur in the next 12 to 18 months will be on sustainability, according to Parker.
He said: “We’ve got the Green Finance Institute (GFI) and people like that going and visiting lenders now, sitting down with them and talking to them, which has never really happened on such a grand scale.”
Parker pointed to the open letter from the GFI to the government, which Aldermore along with other lenders signed, that called for stamp duty reform to encourage demand for energy efficient home and works.
Rachael Hunnisett, national account lead for Skipton Building Society, said that there was a “good debate” to be had around affordability and how that could be linked to EPC ratings, but it would need to done responsibly.
She said: “Lenders will be looking across back books and considering the average EPC rating of their portfolios. It’s important to think about how we can support the reduction of carbon emissions from UK properties and educate on the importance of the wider sustainability agenda. Not only through purchase business, but with remortgages and existing customers too. Specifically, with properties which have lower EPC ratings.
She added that innovation will first take place on additional borrowing, specifically when it came to customers funding retrofitting to improve their efficiency, but education was a key factor.
“We all have a role to play in educating homeowners and innovating to find new ways to support sustainable living, moving forward this has to be a priority,” she said.
Buckinghamshire’s Jenkins said: “I think one of the things that lenders can do is take a principled stand on and say that they won’t lend on the lowest EPC category. That’s an option, and something, we could consider as a way of trying to do our little bit to try and encourage people into more sustainable homes.
“But at the end of the day, what’s going to happen to those Category F homes? In the current housing crisis we need all the homes we can get. With low EPC category homes someone’s got to spend some money on retrofit and the payback is unappealing. I would find it quite difficult to tell a borrower that they need to spend £25,000 or more to improve the EPC and save diddly squat per annum.”