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Written by rosalind renshaw

The second phase of Help to Buy is to be launched next week after David Cameron unexpectedly announced bringing it forward by three months.

One lender, RBS, said it expects to be so inundated with applications that it will extend its opening hours.

However, agents and their buyers and sellers should be aware it will be a phased introduction.

Lenders will be able to begin writing loans from next Monday but the taxpayer-backed guarantee underpinning the mortgages will not be available until January, as previously planned.

It means that while buyers with only a 5% deposit will be able to apply for mortgages, they will not actually get the loans through until January 1 onwards, and so will not be able to complete purchases until then. Miles Shipside, at Rightmove, said he thought that exhanges would be possible before the New Year, with mortgage offers in place, but not completions.

From next week, October 7, borrowers can apply for 95% mortgages to purchase both new and secondhand stock up to £600,000, with taxpayers underwriting up to 15% of the risk for lenders.

Crucial details such as rates on the mortgages are not yet known. Nor is it yet known how much lenders will have to pay for the guarantee.

Lenders have also voiced concerns about capital requirements, which are still also unknown. Currently, lenders have to hold certain amounts of capital and the higher the loans-to-value are on the mortgages they lend, the more capital they have to hold. For example, on loans at 90% loan-to-value, they need to hold around six times more capital than they do for loans at 60%.

Further details of this second stage of Help to Buy, set to help some 200,000 purchasers and far bigger than the first phase launched in April and which is a shared equity scheme on new-build purchases, are due to be announced this week.

According to the prime minister at the weekend, mortgage lenders signed up to the scheme – due to last for three years – include Halifax, RBS and NatWest.

It is not known why the scheme has been brought forward, but Cameron may have listened to concerns that no one could really know what effect such a major intervention in the market will have. By opening the scheme early for mortgage applications, the idea may well be that ministers, lenders, estate agents and developers will get a handle on the strength of demand and whether supply can match it.

Officially, Cameron is simply saying that the second phase of the scheme – which has been criticised by many including business secretary Vince Cable – is needed sooner, not later.

In various interviews at the weekend, he said the market was “recovering from a very low base” and first-time buyers needed help.

He said: “As prime minister I am not going to stand by while people’s aspirations to get on the housing ladder are being trashed.”

Cameron added: “Young people who’ve got a decent job and have got decent earnings – they cannot buy a house or a flat, because they have to have a £30,000, £40,000 or £50,000 deposit.

“Now, if you haven’t got rich parents, you can’t get that sort of money. So we’re going to launch the Help To Buy scheme – it’s not coming in next year, it’s coming in next week, because I’m passionate about helping people who want to own their own flat or home.”

Cameron’s announcement caught many in the mortgage industry on the back foot.

Angel Mas, president of mortgage insurance group Genworth, said: “It is very surprising that the scheme is being launched without clarity on key points, such as the fee and the way in which capital relief will work.”
 
Andrew Montlake of mortgage broker Coreco said the announcement was “extraordinary” given that there had been concern whether lenders would be ready for the scheme in January, let alone October.

Comments

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    Reports on other website highlight lenders themselves do not know how this will work, what they will charge or the effect on their capital requirements, badly thought out again gov policy.

    • 02 October 2013 11:29 AM
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    When will someone think of the kids?..They are being sacrificed for short term gains.

    • 01 October 2013 17:16 PM
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    All ponzi schemes end in tears...This will...

    • 01 October 2013 17:09 PM
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    Have lenders stated their position on this and said what fees they will charge?

    • 01 October 2013 12:46 PM
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    @ Anonymous Coward on 2013-09-30 09:27:46'

    'Which will go on to support our massively overpriced property values'.

    Question:

    For a developer to construct a say, 200-500 estate of average 3 bedroomed houses in the 'Shires' how much would it cost in land, building costs and associated government/EU demands etc. and what price would each one then have to be sold at to make a reasonable profit on each and go on to do it again?

    • 30 September 2013 16:51 PM
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    It's great - but I think we should worry about supply before creating a surge in demand otherwise it will end in tears.

    House prices peak by next General Election, then Labour get in and the markets crashes.... actually, maybe they DO have a plan

    • 30 September 2013 15:01 PM
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    Oh god.... (long drawn out painful sigh)

    Toby - your right, but it is actually to stop them making losses.

    Yes - STILL!

    The government are tightroping across the finest of fine lines between economic collapse and successfully getting through the credit crunch (yes - still).

    It will take at least 5 years to make the smallest of small differences to the planning system.

    Developers will only build if they can see demand.

    This will create a mad rush.

    Which will lead to a bubble.

    Which will go on to support our massively overpriced property values.

    Oh god....

    • 30 September 2013 09:27 AM
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    It is a very good idea to help place people on the property ladder, however, what is the point if there are not enough properties in the first place. The goverment should be putting their mind to increasing the number of houses being constructed. The planning system is still extremely slow and full of additional costs and fees with a majority of the local authorites charging large amounts to cover social housing and insisting on carbon measure reductions over the requirements of the building regulations. This all drastically reduces the profit to developers who are not willing to risk their investments and therefore are reducing their builds.
    I believe that a kick start in new builds is still required and should be a priority with the goverment.

    • 30 September 2013 08:39 AM
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    Is a 15% guarantee going to make that much difference to volume, prices, mortgage rates etc?

    I suspect it may only crank up lenders' profits.

    • 30 September 2013 08:21 AM
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