18 July 2023
If you are covering the latest 95% mortgage guarantee scheme or Help to Buy Equity Loan and ISA statistics, please see the following comment from Karen Noye, mortgage expert at Quilter:
Government’s mortgage guarantee scheme sees growing number risk negative equity
“This morning’s mortgage guarantee scheme statistics show that there continues to be significant numbers of people taking out high loan to value mortgage products despite a potential downturn in the market on the horizon.
“Since launch, there have been 37,376 mortgage completions using the scheme representing nearly 1% of all residential mortgage completions in the UK. Many of the completions were for properties under the average price of a property in the UK with the majority (63%) of completions being for properties worth £200,000 or less.
“With the housing market showing signs of an impending slowdown, with some predictions showing a potential 10% drop is on the cards, there could be severe repercussions for those who have utilised the scheme.
“Negative equity in simple terms is when the outstanding balance of a mortgage is higher than the current market value of the property. In this scenario, if the householder decided to sell their property, the proceeds would not be sufficient to repay the outstanding mortgage. This is a real possibility for those who have taken high LTV mortgages such as 95% mortgages especially if house prices drop as predicted.
“The potential fallout of negative equity can be quite significant. For homeowners, it can mean being trapped in a property, unable to move or remortgage until the housing market recovers. This can be particularly challenging for those needing to relocate for work or family reasons. Furthermore, negative equity may restrict access to the best mortgage deals when homeowners come to remortgage, as these typically require some level of home equity.
“Should a homeowner with negative equity fall into financial difficulty and be unable to keep up with their mortgage payments, selling their home will not cover the full debt, potentially leaving them still owing money to their lender even after the property sale.
“While the scheme has undoubtedly provided a lifeline to many buyers, it is important for potential new applicants to consider the risks as well as the benefits at this moment in time. As the winds of the housing market change, its essential to make informed decisions to weather any potential storm.”
Help to Buy support dwindles as purchase price caps limit buyers’ options
“The impact of the Help to Buy equity loan and ISA schemes is beginning to waver as the offerings near their end, and the various scheme price caps coupled with still high house prices and rising interest rates appear to be having a significant impact on completions.
“Use of the government’s Help to Buy ISA has dwindled significantly in the last year. While the Help to Buy ISA has supported 558,176 property completions since its launch in 2015, only 66,689 of those completed in the whole of 2022 and just 11,040 completed in the first quarter of 2023.
“The Help to Buy ISA scheme, which is now closed to new applicants, offers a generous 25% government bonus to first time buyer. However, this bonus is only available if used on properties costing £250,000 or under, or £450,000 in London. Given the dramatic rise in house prices in recent years, coupled with the fact that they have not yet fallen in the way many had expected, first time buyers will have been left with far fewer options. Despite the average house price now sitting at £285,009 and the average first time buyer house price reaching £236,682, the mean value of a Help to Buy purchase price remains at just £177,372.
“The equity loan scheme was also closed to new applications in October 2022, and the deadline for completions was 31 May, so we are now witnessing the final few completions trickling through. Between January to March 2023, just 3,202 properties were purchased with an equity loan, a 41% drop compared to the same period a year prior.
“The current cost-of-living pressures are having a real impact on the property market and the frustrations of prospective first time buyers are still widely felt. High house prices and rising interest rates mean taking a first step onto the property ladder has been pushed out of reach for many, and we can expect this to continue to reduce the completion rate of the schemes.”
