Distinct lack of bargains suggests likes of HSBC and Barclays making more sober assessment of risks than the chancellor
Roll up, roll up, get your state-sponsored 95% loan-to-value mortgages, courtesy of a government that says we must all cure our addiction to debt. Up to £130bn of mortgages can be underwritten, so there should be plenty to go around. Or perhaps not. On day one of the second stage of Help to Buy, it looks as if the banks may be making a more sober assessment of the risks involved in 95% lending than the chancellor.
Look at HSBC. The bank is usually only a reluctant user of lending schemes backed by the government and the Bank of England, so George Osborne could claim a mini-coup in getting it to participate in Help to Buy. But study the detail of HSBC’s announcement. The bank says it made £5bn available this year for mortgages with a loan-to-value ratio of 75% or more; it plans to allocate the same amount in 2014.
The Help to Buy effect is hard to spot there. It is true the initiative will prompt HSBC to offer 95% loans, an increase from the 90% threshold it currently applies. But the actual number of mortgages that would not have been granted by HSBC anyway may turn out to be tiny. The explanation is simple: the bank will still require borrowers to show they could service their mortgage at a 7% rate of interest.
Or look at Barclays. The bank was conspicuous by its absence in the early list of lenders declaring themselves as users of Help to Buy. This may be because Barclays is simply slower than its brethren in making a decision. Alternatively, it may be that Barclays is reluctant, despite Osborne’s offer of a partial state guarantee in exchange for a fee, to enter the higher-risk 95% market it has traditionally avoided.
Of course, two big mortgages lenders – Lloyds and Royal Bank of Scotland – announced themselves as adopters of Help to Buy before they had even seen the small-print; but, being partially state-owned, they had no real choice in the matter. The real test of their enthusiasm, though, is the price of their underwritten 95% mortgages, and, on first sight, nobody is offering a bargain. As Patrick Collinson notes, the difference between Halifax’s 5.19% Help to Buy loan with a fee and Yorkshire Bank’s 5.49% without a fee and outside the scheme is about £6 a week.
None of which alters the long-standing view here that Help to Buy, stage two, is economically wrong-headed: as the Treasury select committee says, it is more likely to “raise house prices rather than stimulate new supply”. But it’s also possible that the scheme won’t make much difference.
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