Mortgage Finance Gazette
With Help to Buy due to expire in 2023, Robin Fieth, chief executive of the Building Societies Association, explores possible alternative schemes to help first-time buyers
People either love or hate Help to Buy – it is praised for the access it provides to home ownership and equally damned for apparently driving up house prices.
What is not in question is the scheme’s overwhelming popularity with consumers and the clear role it has played in helping many first-time buyers and homeowners on to and up the housing ladder.
First launched by then Prime Minister David Cameron and his Chancellor, George Osborne, politically it has out-lasted both of its creators.
The latest available data from April 2013 to end of 2018 shows a massive 210,000 people have used Help to Buy Equity Loans – with a total value of £11.71 billion – to purchase properties worth a collective £54.48 billion.
New rules
Currently, other than a property limit of £600,000, there are limited restrictions on Help to Buy, but that will all change from 2021. Between then and 2023, Help to Buy will only be available to first-time buyers and for homes priced up to newly imposed regional price caps.
This type of taper on Help to Buy is something that many in the industry have been calling for. And it naturally leads to the question – what comes next?
There is clearly a need/demand for housing schemes. With the government reducing its own financial involvement we are already starting to see private solutions enter the market.
Private shared equity products existed before Help to Buy. For example, Castle Trust provided shared equity loans to help first-time buyers on to the housing ladder before Help to Buy was ever launched.
In the face of significant government intervention from Help to Buy, Castle Trust diversified into shared equity loans to support landlords, business owners and high net worth customers looking to raise capital.
New property schemes
Now there are a variety of new property schemes coming to market using tweaks on an established idea or brand new concepts. The BSA recently hosted an event for its members called Beyond
Help to Buy which included presentations from two of the new housing schemes in or looking to enter this market.
One is Proportunity, a Help to Buy-style regulated shared equity provider combined with a property tech business, which is using machine learning to target properties in up and coming areas.
The other was a company called Perenna Capital Management, which is looking to use pension funds to provide long-term fixed rate mortgages at 20 years plus. By fixing mortgages for such a long term, the aim is to improve the affordability of mortgage debt by protecting customers from interest rate rises.
Help to Buy has shown the clear need for schemes to help improve affordability for borrowers to buy for the first time or trade up. As the government’s footprint across this type of direct financial support reduces, new innovation looks set to fill the gap.
Housing supply – embedding MCC
At the end of 2017 the government set up the snappily titled Joint MMC Working Group on Assurance, Insurance and Finance.
The MMC in this, of course, stands for Modern Methods of Construction and the group was set up ‘to ensure that mortgages are readily available across a range of tested methods of construction’ as set out in the government’s housing white paper published in February 2017. One way of moving this forward can be summed up as ‘standardisation’.
The first step, as with any push for standardisation, is to ensure we are all – lenders, insurers, valuers and warranty providers – speaking the same language. Historically this has been a struggle, with the terms pre-fab, offsite and non-standard construction often used interchangeably with MMC and many others.
Pushing to change this the government published an MMC Definitions Framework at the end of March this year – output from a subset of the working group. The framework aims to define ‘the broad spectrum of innovative construction techniques being applied in the residential market, both now and in the future.’ The BSA hopes that this framework will be adopted by all parts of the industry.
Looking forward, the framework should set the foundation for better data capture about the use of MMC and how buildings are performing over time. For lenders this is crucial, as the long-term risk sits with the lender for the mortgage term and of course their customers, until they come to sell their home.
The BSA is also encouraged by the news that the RICS is aiming to integrate this definition in due course into its valuation guidance. The next step for the group is to establish a Warranty Acceptance Protocol for homes built using MMC. This will be an even more complex task but one that is key to getting MMC embedded in the residential sector.
