Help to Buy scheme needs a ‘permanent replacement’

The Government should introduce a permanent replacement to its Help to Buy scheme to enable more people to get on to the property ladder, a report claimed today.

Mortgage insurer Genworth estimates that up to two million people who would like to have bought their first home since 2007 may not have been able to do so.

The group blamed the situation on the introduction of tougher mortgage regulations and greater capital requirements for lenders.

It said since new regulations were introduced in 2008 and 2009, there had been a dramatic reduction in high loan-to-value mortgages, while those that remained had become more expensive.

But it said the situation could be improved by introducing a mortgage insurance scheme to help lenders spread the risk of high loan-to-value loans.

The group found that someone buying a home costing £147,000 with a 75 per cent loan-to-value two year fixed rate mortgage would pay £496 a month, but someone buying the same property with a 95 per cent loan-to-value loan would face repayments of £843.

But it said a system of mortgage insurance for high loan-to-value loans could help to keep mortgages for people with small deposits affordable by transferring some of the risk away from lenders, while it would also protect the safety of the financial system.

Simon Crone, vice president for mortgage insurance (Europe) at Genworth, said: “The scale of frustrated demand is growing larger by the day.

“Help to Buy must become a precursor to a permanent system where mortgage insurance for high loan-to-value loans – backed by capital relief – plays an ongoing role in helping first time buyers access the market, ensuring a sustainable rise in house building and protecting the safety of lenders and the financial system.”

The group used government and industry data to compare the number of people entering the housing market with expected demand.

It found that the number of people buying their first home was consistent at 10.26 million a year between 1985 and 2006, only slightly below the figure of 10.29 million, which would be expected based on population trends.

But it said since 2007 there had been a large and persistent deficit in first-time buyer numbers.

It estimates between 2007 and 2013 1.8 million people who would have hoped to buy their first home have been unable to do so.

It added that although the Government’s Help to Buy scheme had helped, nearly half of people who were expected to want to buy a home during 2014 were still unlikely to be able to do so.

Based on figures for the first six months of 2014, Genworth estimates there will be 296,200 first time buyers during the year as a whole, despite demographic trends suggesting more than 500,000 people would like to get on to the property ladder in 2014.