Help To Buy Lending Scheme Launch Sparks Homes Frenzy

This article by Sarah O'Grady of the Express on October 9th, 2013 tells us the launching of the 2nd version of the Help to Buy scheme swept up Britain's housing market in frenzy.

Borrowers leapt on the new Government initiative which will allow them to buy homes with 95 per mortgages and slash average deposit amounts.

As details emerged of the deals available from lenders, David Cameron said the project would unlock the housing market and help young people without rich parents get their own home.

HSBC became the first major bank outside state-backed Royal Bank of Scotland and Lloyds to announce it was joining the £12billion scheme.

Britain’s biggest mortgage lender Halifax also ann­ounced details of the home loans it would be offering.

Homes valued at up to £600,000 will be eligible with some estimates suggesting 180,000 loans could be taken out – despite fears that the scheme could spark a housing price bubble.

Taxpayers will guarantee up to 15 per cent of a property’s value, in return for a fee charged to lenders, allowing homebuyers to purchase with deposits as low as five per cent.

As the scheme was laun­ched, Mr Cameron visited a three-bedroom show home in Weston Favell, Northampton and met first-time buyers Kayleigh Groom, 28, and her partner Chris Day, 29, from Kettering.

The couple, who have been renting for five years, told him that Help To Buy would enable them to get on the property ladder.

Mr Cameron said: “What we’re doing is making sure that the typical family can buy the typical home.

“The couple I’ve just been with. They’ve both got good jobs. They’ve both got good prospects. They can afford mortgage payments but because they haven’t got a rich mum and dad they can’t get a mortgage. That isn’t fair. That isn’t right.

“So the Help To Buy scheme will help them to get a mortgage and make them homeowners.”

RBS and its NatWest subsidiary said they expect to sign up 25,500 first and next-time buyers over the three-year scheme. The two lenders are extending opening hours at 740 branches to cope with the demand.

Paul Smith, of haart estate agent, predicted Help To Buy will boost property deals by 10-15 per cent in the next 12 months and cut first-time buyers’ average deposit from £33,948 to £7,218.

He said: “We have seen a frenzy of activity with our branches overwhelmed by enquiries in the wake of the launch of Help To Buy.

“We have had the best first week of October for nine years. Last year we had 3,800 buyers registering in that first week, this year it was 7,281 – that’s a staggering 92 per cent increase.”

Article Source: http://www.express.co.uk/news/property/435438/Help-To-Buy-lending-scheme-launch-sparks-homes-frenzy

 

Concerns that UK is Fueling Property Market

This interesting article by The Irish Times on October 8th, 2013 reveals how the UK's government help-to-buy scheme allows people to buy a home with a deposit of as little as 5%.

UK Chancellor of the Exchequer George Osborne began the second phase of his mortgage-boosting plan as concerns persist that it will fuel a property bubble.

Royal Bank of Scotland’s Natwest unit and Lloyds Banking Group ’s Halifax and Bank of Scotland will start offering Help-to-Buy mortgages this week, with Virgin Money Holdings and Aldermore Bank planning to start in 2014, the Treasury in London said in a statement today. 

The program allows people to buy a home costing as much as £600,000 pounds (€709,000) with a deposit of as little as 5 per cent. The first phase came into effect in April, and Prime Minister David Cameron last week brought forward the start of the second from January, dismissing criticism that the plan may help fuel a bubble. 

Halifax said this month that house prices rose for an eighth month in September and lawmaker Andrew Tyrie, who heads the Parliament’s Treasury Committee, said today that intervention in the property market risks causing distortions. 

“The government has yet to allay the committee’s concerns,” Mr Tyrie, a member of Cameron’s Conservative Party, said. “Given the checkered history of interventions in residential property, great care will need to be taken in both the construction and running of this scheme.” 

Under the mortgage plan, the government guarantees as much as 15 per cent of the purchase price in return for a fee from the lender. Fees will be charged as a percentage of the original loan amount and be reset every year. For 2014, they will range from 28 basis points, or 0.28 percentage points, for mortgages between 80 per cent and 85 per cent of the value of the property, to 90 basis points for loans between 90 per cent and 95 per cent, Osborne said in a written statement to lawmakers today. 

Cameron said today the government “had to act” to help prospective homebuyers.

“Too many hardworking people are finding it impossible to buy their own home,” he said. “Buying your first home is about far more than four walls to sleep at night. It’s somewhere to put down roots and raise a family. It’s an investment for the future.” 

Halifax customers will be able to apply for mortgages under the program starting October 11th. The bank is offering a two-year fixed-rate of 5.19 per cent. That’s more than the 1.94 per cent fixed rate it offers first-time buyers who can put down a 40 per cent deposit, according to the bank’s website. Similarly, RBS is offering two- and five-year fixed rates at 4.99 per cent and 5.49 per cent. That compares with a two-year fixed-rate of 1.95 per cent for first-time buyers who are able to put down a 40 per cent deposit, according to its website. HSBC said in an e-mailed statement today that it will also participate in Help to Buy later this year. 

Article Source:  http://www.irishtimes.com/business/sectors/financial-services/concerns-that-uk-is-fueling-property-market-1.1553937

Help to Buy Scheme: How it Works?

This engaging article by The Week on October 7th, 2013 reveals the purpose and objective of the government in launching the help to buy scheme.

The Help to Buy scheme - a government initiative designed to help struggling home-buyers get onto or move up the property ladder - has two phases. The first, a £3.5bn scheme aimed at buyers of newly-built properties worth up to £600,000, was introduced in April and has already been taken up by about 7,000 people. The second phase, which applies to new or second-hand properties up to the same value, starts accepting applications today. David Cameron believes the initiative is essential because "the mortgage market today isn't working". Critics argue that it may trigger a housing bubble, particularly in the over-heated London market. But what is the Help to Buy scheme and who will be eligible?

How does phase one of Help to Buy work? 

The first phase of Help to Buy applies only to new homes and first-time buyers. Borrowers need to raise a 5 per cent deposit on the property and can then borrow a further 20 per cent from the government, initially interest free, up to a maximum of £120,000. After five years, what remains of the loan will attract interest at 1.75 per cent per year. The rate will increasing each year by 1 per cent above inflation. The £3.5bn scheme, which will be administered by home builders will support about 74,000 home purchases.

What happens if you can't pay your mortgage?

If you take out an equity loan and find you can't pay your mortgage, you'll probably have to sell the property or the bank will repossess it and sell it for you. Citywire points out that the 20 per cent equity loan will still need to be paid back to the government.

And phase two?

Phase two of Help to Buy applies to home movers as well as first-time buyers and second-hand houses as well as new ones. In this phase, the government does not loan money to the homebuyer but provides a guarantee to the lender for up to 15 per cent of the loan. That will allow borrowers with only a 5 per cent deposits a much wider choice of mortgage deals. As in phase one, there is a limit of £600,000 on the value of the property.

Why do lenders need loan guarantees?

The government guarantee reduces the bank's losses if a borrower defaults on his or her payments. "That allows them to offer cheaper mortgages to would-be home-buyers with small deposits, who are currently locked out of the market," explains the Daily Telegraph.

Why has the second phase been brought forward?

The second phase was due to start in January. Asked why the government had brought the start date forward three months, David Cameron said: "I am impatient to help young people get on the housing ladder.

Does that mean I can buy a new home this week?

No. Lenders won't be able to get loan guarantees from the government until 1 January, 2014. That means you won't be able to use the second phase of Help to Buy for home purchases that complete before 2014.

Which banks will offer the 95 per cent mortgages?

The scheme will initially be available from the Nat West, RBS and Halifax, but the government says other banks and building societies are expected to sign up over time.

Are there an unlimited number of 95 per cent loans on offer?

No. The government is making £12bn available in loan guarantees, enough to fund mortgages worth a total of £130bn. The scheme will remain open for three years. Mortgage brokers fear "a stampede of new applications" for loans when the scheme opens, reports The Guardian.

What interest rates will borrowers have to pay?

Citywire says there "could be a catch" in the mortgage rates lenders offer borrowers in the scheme. In the mortgage market those with a large deposit are often able to negotiate a lower interest rate. "It could be that a 5 per cent deposit mortgage incurs a high interest rate particularly if banks are told to hold more capital to cover the risky loan," says Citywire. Banks will also have to pay a fee of 0.9 per cent of the loan value to take part in the scheme. They are likely to recoup that from customers in the form of higher interest rates.

Who is excluded from Help to Buy?

The new loans aren't means tested, but they won't be available to people wanting to buy second homes or buy-to-let properties. Prospective borrowers will be required to sign documents confirming they are first home buyers or, if they already own a home, that they are in the process of selling it.

What do supporters of the scheme say?

The incoming chief executive of the state-backed RBS, Ross McEwan, told The Guardian that his bank was backing the scheme because: "We are committed to helping as many people as possible across Britain to get on with their lives, to buy their first home, to move to a bigger house as their family grows."

What do critics say? 

Business Secretary Vince Cable says the scheme may trigger an unsustainable boom in house prices, particularly in the south-east of England. "I am worried of the danger of getting into another housing bubble," Cable told the BBC. · 

Article Source: http://www.theweek.co.uk/uk-news/55455/help-buy-scheme-how-it-works

George Osborne's Homes Scheme Could Sideline First-Time Buyers

Help to buy homes scheme could cause property prices to new highs says lenders as shown on this article by Hilary Osborne and Phillip Inman of TheGuardian on August 28, 2013.

Help to Buy scheme may 'give with one hand and take with the other' by pushing costs up by 11% by the end of 2016.

George Osborne's policy of kickstarting the housing market with subsidised mortgages could inflate prices to pre-crash peaks and sideline the first-time buyers it is designed to help, according to a group representing some of the UK's biggest banks and building societies

In the latest warning about the impact of the Help to Buy programme, lenders said property prices could rise by 11% by the end of 2016, with artificially inflated valuations the biggest threat to its success. Without a housebuilding programme to address the extra demand, property prices could spiral to new highs, said the Intermediary Mortgage Lenders Association.

"If house prices continue to rise for the duration of the scheme, then in essence we will be giving with one hand and taking away with the other," said Peter Williams, executive director of the IMLA and director of the University of Cambridge Centre for Housing and Planning Research.

House prices in London are above their 2007 peak, according to the Nationwide building society, but taken across the entire country they remain 9% lower, as IMLA warned that under the scheme the average UK home would cost £180,256 by the end of 2016. That would take average prices close to 2007 peak of £181,975.

The Help to Buy scheme, announced by the chancellor in March, aims to grant mortgages to homebuyers with a deposit of as little of 5% of a property's price.

The first part of the programme, which allows buyers to subsidise purchases of newbuild homes with an interest-free loan from the government, launched in April. It has been credited with reversing a fall in housebuilding and boosting consumer confidence. However, the second part, which will be introduced at the start of 2014 and will offer a taxpayer-backed guarantee to lenders who offer mortgages worth up to 95% of the property's value, has attracted criticism from economists, politicians and other commentators, who have warned it could fuel a house price bubble. Albert Edwards, who heads the global strategy team at Société Générale, described it as a "moronic policy".

IMLA, whose members include subsidiaries of Santander, Barclays and Nationwide that offer mortgages through brokers, said 60% of its members believed the scheme could be undermined by a house price bubble.

While all respondents agreed first-time buyers had the most to gain from the second part of the scheme, they are likely to be the hardest hit by a rise in prices to 2007 levels. This would push the cost of a 5% deposit from £8,321 at the end of this year to £9,013 by the end of 2016.

A recovery in the housing market has accompanied a turnaround in the economy since the beginning of the year. GDP has risen by 1% in the first six months, with most sectors of the economy showing they expanded compared to last year.

However, the TUC is warning that a rise in UK population, by 2.3 million to 63.7 million over the last five years, means the benefits of GDP growth have been spread over a greater number of people. According to a TUC analysis, GDP per head is still 0.7% lower than when the coalition took office and 7.5% lower than the UK's peak level in late 2007.

The TUC's general secretary, Frances O'Grady, warned that the recent burst of borrowing by consumers to fund everything from house purchases to the weekly shop was based on extra debt and not on a rise in incomes.

She said: "Too many people are having to run down their savings or turn to credit cards to spend in the shops, rather than see their incomes grow. And behind improving employment figures are millions of workers whose incomes are falling and who can't get enough hours to make ends meet.

"We all want to see the UK economy back on track but any talk of recovery is meaningless unless we get the right kind of growth."

The current level of GDP per head at £23,728, is mere 0.7% higher than at the lowest point of the recession in September 2009, the TUC said.

Article Source: http://www.theguardian.com/money/2013/aug/28/george-osborne-housing-policies-damage

Prime Property Prices in Central London Still Rising

This article of the Property Wire on August 26, 2013 shows that prime property prices in central London continued to rise in August but there are indications that buyers are becoming more resistant to continued price rises, especially at the top of the market.
 
The latest central London sales index from Knight Frank shows that property prices in London’s best postcodes increased by 0.6% this month and so far this year prices have risen by 4.8%.

Marylebone and Notting Hill recorded the largest rises over the course of the month, up by 1.5% and 1% respectively. Islington, City Fringe and Hyde Park all reported price growth of 0.9% in August.

In spite of record prices, enquiry levels are still robust and interest among prospective buyers remains high across central London. The number of new applicants is up by 33.9% over the year to date compared to the same period in 2012 and the number of property viewings conducted over this period is up by 18.5%.

At the same time annual price growth for properties in Greater London is now outstripping prime central London, boosted by the city’s continued economic recovery and government policy.

Figures from the Office of National Statistics show that property prices in Greater London have risen by 8.1% over the past 12 months. In comparison the Knight Frank Prime Central London Sales Index is up by 7% on an annual basis.

Price rises in prime central London are primarily being driven by homes in the sub £1 million and £1 million to £2.5 million price bracket.

Homes in these price brackets increased by around 1% in August and are up by 8.7% and 7% respectively over the year to date. Comparatively, homes in the £5 million to £10 million and the £10 million plus price brackets increased in value by 0% and 0.2% month on month and are up by 2.6% and 1.6% respectively so far in 2013.

Knight Frank says that key factors driving price growth and interest include the city’s reputation as a safe haven for investment, and the value of the pound. However the firm’s global head of residential research Liam Bailey pointed out that performance has outperformed forecasts.

‘Last year, we forecast that prices would remain unchanged in 2013, marking an end to the strong run the market has seen since early 2009. Our rationale was that the increase in Stamp Duty would have an impact on the top end of the market and there would be resistance to price growth from domestic and international purchasers,’ he explained.

‘In the event we overstated the negative impact of the 5% to 7% Stamp Duty rise for £2 million plus properties. The further weakening in sterling in the first half of the year helped to boost overseas interest and domestic demand has been aided by London’s continued economic recovery and, arguably, from the government’s Help to Buy scheme, which was launched at the end of the first quarter this year and has boosted sentiment across the market,’ he added.

He also said that while Help to Buy, with its £600,000 valuation cap is a more significant factor in the wider mainstream market, rising housing market sentiment, as reported in the firm’s latest House Price Sentiment Index, is infectious across markets and price brackets and is likely to act as a positive influence in terms of future pricing, even in London’s prime
market segments.

‘We have therefore raised our forecast for prime central London price growth for 2013 to 6%,’ he added.

Article Source: http://www.propertywire.com/news/europe/prime-london-property-prices-201308268161.html