The rate of house price rises has led to concerns of a new housing bubble as more people are able to get a mortgage, leading to an even greater disparity between supply and demand which has pushed prices up.
The Bank of England’s move to prevent the housing market from ‘overheating’ has rung alarm bells for many who are looking to get a mortgage or have been looking at the Help to Buy scheme as a lifeline to buying a home, but it’s not the end of mortgage lending and it’s not the end of Help to Buy.
However don’t get baffled, the Funding for Lending Scheme is not Help to Buy. Help to Buy, which is run by The Treasury helps buyers borrow up to 95% of the value of the home, thanks to the government backed Mortgage Guarantee on 20% of the loan for any home up to £600,000 or through the Equity Loan (5 years interest free) on New Homes – Click here for more information.
The withdrawal of Funding for Lending does not mean people won’t be able to get a mortgage, but the rates are likely to become less favourable as the lenders have to pay more to borrow. Tougher affordability tests are going to be on the cards for all homebuyers.
The Council of Mortgage Lenders commented “Although the changes to the FLS may be a surprise, they are not a shock. Mortgage lenders are well equipped to meet their funding needs, as wholesale funding market conditions have improved and retail deposits are robust.” Banks are now in a better position to lend on their own and have rebuilt their capital buffers’, meaning the backing of the funding is less essential to keep the Banks lending to homebuyers.
The view of the Bank of England that the property market is stable enough to stand on its own two feet should, if anything, be reassuring. The activity of the property market over the last year has demonstrated there is a hunger to become a home owner and a yearning to move up the ladder.
If supply for property was in line with demand for property then we would be much less likely to observe the rapid increase in property prices that has been spreading out from London across the south east, this puts the focus on Government policy to facilitate sustainable house building and a long term strategy for supply of property, perhaps if that had been a greater focus from the beginning of the FLS they wouldn’t need to withdraw it or there would have been less need for it in the first place.