George Osborne originally pledged the scheme would enable up to £130bn of lending over three years, equal to £43.33bn a year. Yet Genworth’s analysis of industry, government and regulatory data shows Help to Buy 2 supported £5.76bn of mortgage lending in 2014, just 13% of its potential capacity.
Last year’s £5.76bn therefore left a shortfall or ‘spare capacity’ of £37.57bn.
Better use of Help to Buy 2 could return first-time buyer numbers to pre-recession levels
This spare capacity has the potential to restore first-time buyer numbers to the long term norm seen before the recession. Last year’s average Help to Buy 2 loan was £147,378, meaning an extra £37.57bn of lending could enable 255,415 more house purchases. When you consider that first-time buyers account for 78% of Help to Buy 2 customers, this is equal to 199,224.
At present however, first-time buyer activity remains well below its long-term pre-recession average. 311,400 first-time buyers bought their first home using a mortgage last year – including around 30,000 using HTB2 – compared with over 500,000 a year from the mid-1980s to early 2000s. If Help to Buy 2 was able to boost these figures by 200,000 this would herald a return to the figures seen throughout the peak years.
Simon Crone, vice president for mortgage insurance – Europe at Genworth, commented: “At a time when hopeful first-time buyers face multiple challenges to reach their goal of home-ownership, it seems unacceptable that Help to Buy is not maximising its capabilities to help more achieve this aim.
Given low rates of house building, it is perhaps a blessing that the market has not been flooded by an extra 200,000 first-time buyers overnight. But if careful steps are taken and it is paired with greater house building to guard against house price inflation, our analysis shows that Help to Buy could help restore the first-time buyer market to its former glory.
Yet a major challenge remains; the current scheme holds little appeal to building societies and is being overlooked by banks at 85% and 90% loan to value (LTV) where loans are going unprotected. If the next government is serious about supporting homeownership in the UK, it must work with the private insurance sector to bed a permanent mortgage guarantee into the market for the long haul, with terms that are more appealing to lenders to encourage wider uptake.”
HTB2 increasingly acting as prop for high LTV lending
Genworth’s analysis also indicates that mortgage lending to buyers with small deposits became increasingly dependent on Help to Buy 2 during the course of 2014.
Examining government and regulatory data reveals the amount of total >90-95% LTV lending accounted for by Help to Buy 2 lending consistently increased during 2014. In Q1 Help to Buy 2 lending was equivalent to 63% of >90-95% lending, rising to 76% in Q2, 79% in Q3 and 81% by Q4, a record high.
With the high LTV market having experienced a significant slowdown in Q4 last year and greater lending constraints in the mortgage market, this trend highlights the importance of retaining Help to Buy 2 as an essential prop. This is crucial to prevent lending levels falling back down to those seen during the midst of the recession in the new regulatory climate.
The growing reliance from high LTV lending on Help to Buy 2 is further supported by the fact that Help to Buy 2 lending grew almost twice as fast as >90-95% LTV activity from Q1 to Q2 (78% vs. 48%) and twice as fast from Q2 to Q3 (8% vs. 4%) following MMR implementation (see graph 3).
Against a background of new FPC controls and tightening capital requirements for lenders, both Help to Buy 2 and overall >90-95% lending slowed significantly in Q4 2014: dropping 18% (£318m) and 21% (£460m) respectively.
Even though Help to Buy 2 operates under tighter limits than the wider market**, these findings suggests the government scheme is becoming even more vital to support 95% LTV lending as regulatory limits are tightened.
Simon Crone, vice president for mortgage insurance – Europe at Genworth, commented: “There is substantial evidence to suggest Help to Buy 2 has become increasingly vital in propping up the market for 5% loans which are the lifeblood of first-time buyers. Macro prudential action is important to maintain vital stability in the economy, but there are signs that it is pulling in the opposite direction of the government’s efforts to support first-time buyers with smaller deposits.
It leaves a big question mark over how access to high LTV loans would survive in a climate of tighter lending restrictions when HTB2 is withdrawn in a little over 18 months’ time. There is little in the data to inspire confidence that 95% LTV mortgages can survive and prosper without some form of support in place.
Politicians would be naïve to contemplate a bright future for first-time buyers without a permanent scheme that incentivises lending while keeping a close eye on affordability measures. The new government must commit to a review of Help to Buy 2 that looks to learn lessons from the experience so far and puts permanent measures in place to prevent the high LTV market falling further back into decline.”
