Help to Buy jump

Record numbers of buyers snapped up newly built homes in June, using the government's Help to Buy scheme.

The month saw 4,745 taking advantage of a state-provided interest free loan, provided under Help to Buy, to boost their deposits.

More than 3,800 of them were first time buyers, stepping onto the housing ladder.

Housebuilders have been cashing in, with Barratt Developments reporting a 45 per cent jump in profits this morning, to £565m.

Higher prices have been helping the builders as well: the price of the average Barratt home has risen by nearly 9 per cent in a year.

More than 56,000 buyers have completed purchases using Help to Buy Equity Loan scheme since it launched in April, 2013, on £12bn worth of homes.

A similar number have benefited from the scheme to assist buyers of older homes, called Help to Buy Mortgage Guarantee.

The Treasury put the total helped by various programmes so far at 120,000.

Taxpayer in hock to First Time Buyers

Today's promise from the government that it will guarantee the mortgages of First Time Buyers raises the question : at what point would taxpayer money be lost?

By the way, remember this Mortgage Indemnity Guarantee, masterminded by the Home Builders Federation and the Council of Mortgage Lenders, will also be open to existing owners who want to move but can't afford more than a 5% deposit.

Here are the details, but in summary the...

Homebuyer can get a 95% mortgage on a new home, because...
Housebuilder guarantees 3.5% of the price,
Taxpayer guarantees 5.5%,
Buyer puts up a 5% deposit.

For there to be a call on the taxpayer guarantee, first there has to be a default.

Plenty of people carry on servicing their mortgages, even though the value of the home has fallen and put them in negative equity. If there is negative equity, the taxpayer is in danger, but doesn't have to stump up any cash.

Next, the deposit has to be eliminated - a 5% shortfall in the price.

Then, the builder's stake of 3.5%, before there is a call on the taxpayer.

So what you'd need, in theory, would be a default and drop in value of more than 8.5%.

Of course, if the price of one home falls, others will drop as well. So if one buyer defaults it's likely that many others will be in the same dire position. The cost for the taxpayer would multiply.

Only 5% deposit at Nationwide

Any addition to the options for first time buyers has to be welcomed at the moment.

Nationwide has added its Save to Buy scheme, allowing first timers to obtain a 95% mortgage or, putting it the other way round, put down a deposit of just 5%.

It adds to offers from Lloyds, Barratts and Taylor Wimpey and a deal from councils.

The rules are that prospective buyers have to open a special savings account with Nationwide and deposit £50 a month for at least 6 months.

Then they qualify for a 3 year fixed rate mortgage at 6.29%, for a discounted fee of £400. Or a five year fix at 6.89%.

If I were to niggle I would say it is a shame that the savings account can't be a tax-free ISA. Nationwide says it wanted a simple account for all.

Plus, it points out that savers qualify for a bonus of up to £1,000 to help with the mortgage, if they do eventually apply for one.

How much difference will it make?

Well, Nationwide lent to 17,000 first time buyers in the 11 months to February this year, slightly more than its overall market share warranted.

But the total number of new buyers last year was 197,400, so an increase the Nationwide figure is unlikely to transform the situation.


According to the Council of Mortgage Lenders, the highest number of purchases by first-time buyers recently came in 2001, when the total was 568,200.


Hence, some would argue that you need to bring hundreds of thousands of first time buyers into the market to get things moving healthily again.


None of the schemes on the table will do that, together or separately.

Valuers have been busy

Valuations are increasing, says one of the larger estate agents, Connells, a sign that activity is "picking up".

These days we look for any straw in the wind for an indication that the housing market might be reviving.

I'm not talking about house prices going up. First time buyers and homeowners trading up want them to stay low.

The key factor is the number of transactions, which are running at half the level of the pre-recession boom.

Generally speaking, when you get a mortgage, you have to have a valuation done. So the number of valuations is an indicator of sorts.

Connells says there was a 7% rise in March compared to a year ago, the fourth month in succession which has seen an increase.

And valuations for the first quarter of 2011 as a whole were up 24% in number on the previous 3 months.

Valuations for first time buyers rose by 21% in March. Buy-to-let was busy too.

A dose of caution is in order here. The total was still 30% down on March, 2008, when the financial crisis was already underway, and 51% down on March, 2007.

And getting a valuation is not the same as completing a purchase.

But it could be a start.

Councils chip in for first time buyers

Here are the mechanics of the new Local Lend a Hand scheme adding to help for first time buyers. As you'll see, whether it works or not rather depends on whether councils manage to select young buyers who don't default.

Take the example of Warrington in Cheshire. The council will set aside £5m to deposit with Lloyds TSB as security for new mortgage borrowers who can't get help from the Bank of Mum and Dad, but can afford the monthly repayments.

The buyers don't receive any money from the council. But Warrington will put 20% of the purchase price of each home into its Lloyds TSB account.

With the security of the council's cash, Lloyds will offer the first time buyer a 95% mortgage. So the bank will only demand a 5% deposit from the buyer.

There's an extra benefit in the rate charged to the borrower. Lloyds will give them the fixed rate usually proffered to homebuyers who can manage a 25% deposit. The monthly payments will be significantly less.

On the other hand, if the buyer defaults, then the council could lose some or all of the cash it has put up for that particular property.

The scheme could help 300 buyers in Warrington and varying numbers in the other 4 local authority areas. 10 more councils are waiting in the wings, which is why Lloyds is talking about tens of thousands benefiting, eventually.

So what's in it for the council?

It is a policy objective to get young people on the housing ladder and off the waiting list for social housing. Also, council officers want to bring disused housing back into occupation and boost the local economy. Any nudge to buying activity would help.

But the question is whether this route makes sense financially. In a time of cuts council tax payers don't want to see their funds being diverted unnecessarily.

Here's Warrington's answer:

*The money is part of its cash flow. It would be depositing cash somewhere anyway.

*It gets a better interest rate from Lloyds under the scheme, around 4%, than it receives elsewhere.

*The average rate of default is 0.3% or £3,000 for every £1m invested, so there isn't a big risk of losing out.

In the end, it comes down to whether the needy people selected by councils and approved by Lloyds TSB will be reliable enough to keep any losses to a minimum.

If they are then more councils are likely to sign up and more lenders could join the panel of banks providing the mortgages.

First Time Buyer numbers plummet in December

Anyone looking at the latest mortgage lending figures from the big banks and building societies will be shocked to see a 42% drop to 14,500, year-on-year, in the number of first time buyers being granted a mortgage in December.

First time buyers are seen as crucial to any housing revival.

There is an easy explanation for this sharp fall. December 2009 saw the end of a stamp duty holiday designed to rescue the housing market. So there was a rush of buyers trying to take advantage.

The stamp duty concession meant no stamp duty had to be paid on properties under £175,000. The threshold went back to £125,000 at the end of 2009.

However, first time buyer numbers are still on a downward trend. The total fell by 3% between November and December 2010, according to the Council for Mortgage Lenders. And it was lower for the year as a whole.

The trend will focus attention on next week's First Time Buyer Summit called by the housing minister, Grant Shapps. He has summoned housing and lending bodies to suggest better ways of bringing young buyers into the market.

Another factor which they are bound to look at is the rise in deposits which first time buyers are having to to pay.

The typical deposit has risen again, to 23% from 21%. Of course, this is for buyers who succeed in getting mortgage. Many others don't succeed or don't try because of the high level of deposits required by lenders.