The introduction of the Government backed Mortgage schemes, were set up to invigorate the property and mortgage market and help the aging first time buyer to get on the property ladder, by making it ‘easier’ to buy a new property, not that everyone wants or likes new properties!
To help the process they have also recently brought forward the Help to Buy scheme version 2, which is now open to people buying a ‘used’ ‘second hand’ ‘existing’ property with as little as 5% deposit.
On the face of it, underwriting the loan risk by the Government should be a good thing. I recall buying my first property back in 1988 with only a 5% deposit and this was considered normal, so a 95% mortgage today shouldn’t really be revolutionary or an awe inspiring idea to boost house sales and lending figures.
Sadly that is exactly what is now happening, because obtaining a Government backed mortgage under Scheme 2 is proving not to be as easy as originally thought and there are strong indications that the lenders criteria and credit scoring is so strict that a large percentage of applications are getting rejected.
There is no denying that the Governments Funding for lending scheme launched in August 2012, has helped lenders do their job of lending and the schemes have seen an increase in borrowing and helped boost confidence in the market. Even this week the Bank of England said lending was up by almost a third, year-on-year, though they have also announced that the Funding for Lending will stop for mortgages in 2014- has the success lead to the market picking up to quickly?
Some parties are even calling for the Government to now withdraw the help to buy schemes from the market, because they are starting to increase property values again, which exasperates the problem and now starts to makes their attraction even more desirable as a ‘buy now whilst stocks last’ perception will start to exist.
It could be construed that some of these latest schemes are becoming a hindrance to buying a property, because criteria is so strict, it will leave an already aging and despondent first time buyer and second time buyer population even more despondent and could create a culture that you don’t need to save much, as the Government will help you, leading to a false sense of security.
This is not helped with there only being a handful of lenders who are lending under the scheme for Help to Buy Version 2.
Hopefully the increase in lenders in the new year, albeit only three or four, will increase product range and competitiveness, but there is now concern that the aforementioned schemes are artificially inflating property prices, with Halifax this week stating that house prices in the three months to November were up 7.7 per cent year-on-year.
The difficulty for first time buyers and even home movers is not just that there has been a shortage of lending funds available over the last few years, but the property prices boom that existed prior to the banking collapse. It is this price rise that left many properties beyond the reach of an average wage, regardless of a lenders funding ability and there is a fear these schemes are beginning to increase property prices to quickly and again beyond reach.
Despite Government comments this week about economic recovery, jobs, salaries and prospects are still very fragile for a lot of people and the overpriced property market and difficult lending market doesn’t help.
Although is easier to get a mortgage today than it was 3 years ago and despite only needing a 5% deposit today, getting on the property ladder is still major task and requires careful planning, thought and finances and advice is more important than ever as some of the scheme products are not as cost effective as saving for a 10% or even 15% deposit!-here lies the problem.