THE GOVERNMENT’S Help to Buy scheme has a “limited” capacity to create a housing bubble, according to a senior figure at a Yorkshire mutual.
Kim Rebecchi, Leeds Building Society’s sales and marketing director, made the comments after it was revealed that more than 6,000 people have applied for mortgages under the Help to Buy scheme in its first three months.
If approved, these mortgages would amount to £910m in loans, according to Prime Minister David Cameron. Help to Buy has been established to help aspiring home-owners gain a foothold on the property ladder, while stimulating house-building. However, it has raised concerns that it could fuel a property bubble.
Mr Cameron said: “In less than three months, the scheme has already helped thousands of people. I want to see that continue in 2014 and for Help to Buy to help thousands more realise their dream of home ownership.”
British lenders provided 45,044 mortgages for home purchases in November, more than in any month since December 2009, data from the British Bankers Association showed last week.
The Bank of England, which collects fuller data about the British mortgage market, said in November that lenders had approved 67,701 mortgages in October, a six-year high, although still below the pre-crisis average of about 90,000. In November, the Bank unexpectedly said it was ending its own incentives for banks to provide mortgages as part of the separate Funding for Lending scheme, which would instead focus exclusively on lending to businesses.
Bank Governor Mark Carney warned in December that Britain’s housing market had a history of moving “from stall speed to warp speed”, and one of the Bank’s biggest challenges is keeping prices under control without holding back the rest of the economy. The Bank and economists have also been concerned that the recovery relies too heavily on household consumption. Data last month showed UK house prices rose 5.5 per cent in the year to October, with London prices 12 per cent higher.
Mr Cameron and Chancellor George Osborne have dismissed concerns about Help to Buy. They say it helps people with sufficient incomes to meet monthly repayments, at a time when many people cannot afford the hefty deposits demanded by banks.
However, Business Secretary Vince Cable said last week that the Government should review the scheme in light of changing circumstances. Barclays and Santander banks are expected to launch mortgage products supported by Help to Buy later this month, joining RBS and the Halifax division of the Lloyds Banking Group that have been involved since the start, and other participating retail banks.
Ms Rebecchi said yesterday: “Leeds Building Society participates in the Help to Buy Equity scheme in England and the separate scheme operating in Scotland. We have seen steady interest in this product, but it remains a limited percentage of our total mortgages agreed. However, Leeds Building Society continues to lend up to 95 per cent loan to value on traditional mortgages, so our customers can choose a traditional 95 per cent mortgage or a Help to Buy equity scheme. We do not participate in the Help to Buy guarantee scheme. In the context of a mortgage market worth around £165bn in 2013, £910m of Help to Buy mortgages is approximately 0.6 per cent of gross mortgage lending. The impact on the overall mortgage market and, by implication, its ability to drive a bubble, is limited.”
Ms Rebecchi said Help to Buy had generated extra demand.
She added: “However, some Help to Buy customers may have bought via other schemes and traditional mortgages.”
Yorkshire Building Society senior product manager Chris Smith said: “We remain strongly committed to helping our customers purchase their home and we support the intentions of the Help to Buy Mortgage Guarantee scheme in encouraging more lenders to provide lower deposit mortgages, but we are able to deliver on its aims without relying on Government support.”
Peter Myers, the chief executive of Beverley Building Society said the society is experiencing “unprecedented demand for existing mortgage products”.
So far, no Beverley Building Society members have enquired about Help to Buy mortgages, which could be partly due to the relatively low average property prices in East Yorkshire, Mr Myers added.