Housing & Mortgage Round Up: Help to Buy unveiled, whilst first time buyers continue to struggle

A huge amount of housing and mortgage news to catch up on this week, with the main headlines being grabbed by the unveiling in the Budget of the Help to Buy scheme, designed to provide much needed help to people to get on and also move up the housing ladder.

There is also news confirming just how negative many would-be first time buyers feel about the housing market, perhaps confirming the need for additional help from the Government.

Help to Buy announced

The Government is clearly keen to boost the housing market and help all potential homebuyers, however the announcement by George Osborne of further radical help for homebuyers, in the shape of the Help to Buy scheme, was still a surprise.

The Help to Buy Scheme will have two components. The first being £3.5 billion of shared equity loans, of up to 20% of the purchase price, available to anyone buying a new build property and putting a deposit down of at least 5% from their own savings.

The loans, which will be available to all buyers, irrespective of income, will be interest free for five years and repaid when the home is sold. This part of the scheme will be launched from 1st April 2013.

The second component is a new £130 billion mortgage guarantee scheme, to help people who can’t provide a large enough deposit and have therefore been unable to secure a mortgage. Again this will be available to all borrowers, but it will not limited to new build properties.

The borrower will still need to put down a 5% deposit from their own savings, however the Government will guarantee a further 15%, which it is hoped will encourage more flexible mortgage lending.

If you would like to know more about the Help to Buy scheme visit our latest Q&A: Everything you need to know about the Help to Buy scheme

Older homeowners struggle with interest-only mortgages

According to research from Moody’s three quarters of all mortgage borrowers over the age of 60 have interest-only mortgages.

Interest-only mortgages were popular in the 80’s and 90’s, when many people took out an investment vehicle, such as an Endowment, PEP (Personal Equity Plan) or ISA (Individual Savings Account) to repay the debt. They rose in popularity again during the last housing boom, as people took out interest-only mortgages, but this time without a repayment vehicle in place, as this was the only way many people could afford to get onto the housing ladder or move home.

However, it now seems that the problems created by interest-only mortgages, with no repayment vehicle in place, are being understood.

Moody’s estimate that an astonishing 75% of all borrowers, over the age of 60, have an interest-only mortgage.

More worryingly Moody’s research also claim that 38% of interest-only mortgages, held by older borrowers, will have to be repaid in the next four years, which may be difficult for some borrowers if there is no repayment vehicle in place.

Older borrowers with interest-only mortgages have a range of options, including using their savings or investments to repay the loan, downsizing to a smaller property or working with their lender to convert the mortgage onto a capital repayment basis or continue with the interest-only loan for a longer period.

Reacting to the survey Annabel Schaafsma, from Moody’s structured finance group, said: “The most at-risk group are those with deposits of less than 20pc. Some will have to use their savings to repay the mortgage. Others will have to downsize.”

Mortgage lending drops

After positive figures for January, the Council of Mortgage Lenders (CML) has reported that mortgage lending dropped in February.

According to the CML, gross mortgage lending fell in February, down to £10.4 billion, from £11.4 billion in January; although it was still 1% higher than the same month last year.

Commenting on the figures he CML’s Chief Economist, Bob Pannell, said: “With relatively strong house purchase numbers and subdued remortgage activity, the underlying position does not appear to have changed much over recent months.”

The CML figures have caused some concern amongst experts, who point to the fact that despite the Funding for Lending Scheme, borrowing and new mortgage approvals remain relatively subdued, with gross mortgage lending predicted, even this early in the year, to fall short of the CML’s prediction for 2013.

60% of tenants will never be able to buy their own home

New figures from the Castle Trust show that 60% of tenants, equivalent to around 4.5 million people, doubt they will ever be able to buy their own home. A further 1.5 million people did not think they would be able to buy a home within the next five years.

The research shows just how hard it still is, despite various Government schemes, for first time buyers to get onto the housing ladder.

Sean Oldfield, Chief Executive of Castle Trust, said: “The risk of rising mortgage rates is a major issue for home owners with their finances already under pressure.”

He continued: “Many people are either unable to get on the property ladder or stuck in their current home despite interest rates still being at an all-time low. Schemes like the Government’s Funding for Lending are helping to boost borrowing options but the market still needs innovative lending products.”

Prices rise for first time buyers who can afford to buy a home

Hot on the heels of the research from the Castle Trust, new figures show that prices are rising for those first time buyers who can actually get onto the housing ladder.

According to data from the Office for National Statistics (ONS), the price paid by first time buyers for a home rose by 2% in January, compared to 12 months ago. This of course may partly explain why 60% of would-be first time buyers feel that they will never be able to buy their own home.

Although less than the average increase of 2.2% over the same period, it is still unwelcome news for would-be first time buyers, many of whom are finding it hard to save the necessary deposit to get a mortgage, which will allow them to get on the first rung of the housing ladder.

The ONS figures show that house prices actually fell by 0.7% between December and January, although their data shows that the average house price in the UK is £234,000, well above the figures given by the other three major house price surveys from the Land Registry, the Halifax and the Nationwide.

Our mortgage adviser, Linda Wood, is here to help you. If you would like advice on your options or you are affected by any of the stories in this week’s housing round up please call Linda today on 0115 933 8433, alternatively enquire online or email linda.wood@investmentsense.co.uk

Your home may be repossessed if you do not keep up repayments on your mortgage.

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