The Financial Conduct Authority has issued a shock warning that mortgage borrowers who purchased properties through the Help To Buy scheme face the risk of negative equity.
In a document called Sector Risks 2020, published yesterday, the FCA says of Help To Buy borrowers: “A stagnant housing market, combined with the new build premium, could see a reduced number of re-mortgage options relative to a non-HTB property. They are also more likely to face negative equity if property prices begin to fall.”
The authority says that by the end of 2018 - the latest figures available - some 211,000 consumers had used Help To Buy to purchase properties.
“Sixty per cent of Help To Buy first time buyers paid the minimum deposit of five per cent, compared to 40 per cent of non-HTB first-time buyers” it says, adding the warning: “There is potential for these consumers to be more exposed to any change in economic conditions.”
The same paper also warns that as competition grows across all sectors of the mortgage market, and with more homes being purchased without borrowing, so lenders are chasing a shrinking pool of customers.
“This has led to some firms stretching their affordability assessments to lend to potentially higher-risk customers” it says.
The FCA also highlights the growth in later-life borrowing, driven by longer life expectancy, the accumulation of property wealth, paying off other debts - including maturing interest-only mortgages - and supporting other family members getting on the housing ladder.
As of autumn 2019, there was a record 287 lifetime mortgage products available to consumers.