Shahil Kotecha

Help to buyout

The 2013 Budget saw the then chancellor of the exchequer George Osborne announce Help to Buy.

And despite a further £10bn pledged by this government to take the scheme up to 2021, many are beginning to question its effectiveness.

Some people who bought under Help to Buy may now have problems trying to remortgage, and face being kept on high standard variable rates nearly double what typical two-year fixed mortgages cost. Some people may have failed to realise (or were not correctly advised) that this loan represented equity and that the loan would increase if the property’s value went up.

As these cracks have emerged, consumers also have rising interest rates to contend with. Early August saw the Bank of England raise the base rate to 0.75%. This may seem like nothing, but it could be the first of many in response to an improving economic landscape.

The combination of stringent lending measures from mainstream banks and the threat of further rate rises has triggered concern. There is an opportunity for the new wave of alternative lenders operating in the property space to solve the current impasse between borrowers and lenders, providing a lending solution for the thousands of ‘mortgage prisoners’ struggling to refinance their assets. 

Many of these borrowers are more than capable of continuing to repay and are simply victims of the bureaucracy that has plagued financial markets over the last decade, as regulators overcompensate for having turned a blind eye for so many years prior.

What we need is balance and a fair deal for consumers – particularly those who used a government scheme in good faith.

While alternative lenders could help many ‘mortgage prisoners’, the short-term nature and pricing associated with the products offered means that in most cases, we’re likely to be kicking the can down the road and, in the end, several cases will be beyond help and could incur losses. The entire predication – not just of Help to Buy, but Britain’s wider attitude to home ownership – is that prices ‘will always continue to rise’.

When it comes to Help to Buy and the palpable lending gap now appearing in the market, there is serious scope for alternative lenders to make headway, but this is only if there is a market-wide reform. This could take the form of a market-driven solution administered by the government – with investors providing finance, perhaps with a modest safety net underneath.

Tailoring lending to suit a range of emerging needs – whether for ‘mortgage prisoners’ or start-ups – has to climb further up the political priority list. Only then will property buyers and businesses alike feel as safe as houses.

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