Help To Buy Vulnerable To Negative Equity

A financial services regulator has warned that Help To Buy users are extremely vulnerable to changing economic conditions and negative equity.

Up to June 2019, 236,313 properties were bought with a Help to Buy Equity Loan. The Financial Conduct Authority (FCA) claim that 211,000 consumers had used Help to Buy to purchase their home by the end of 2018.

The FCA’s ‘Sector Views Report’ also states that over 60 per cent of the first-time buyers using the scheme took advantage of the 5% minimum deposit. This reduced to just 40 per cent of non-FTBs.

The FCA fear that changing conditions expose this section of property owners to increased risk which could restrict them from accessing remortgage products or selling their homes in the future.

The report claims:

“By the end of 2018, 211,000 consumers had used Help to Buy schemes to buy properties.

“Sixty per cent of HTB first-time buyers paid the minimum deposit of 5 per cent, compared to 40 per cent of non-HTB first-time buyers.

“There is potential for these consumers to be more exposed to any change in economic conditions.

“A stagnant housing market, combined with the ‘new build premium’, could see a reduced number of re-mortgage options relative to a non-HTB property.

“They are also more likely to face negative equity if property prices begin to fall.”

Consumers have enjoyed years of favourable rates created by increased competition and a reducing number of active borrowers. The report remains concerned that some lenders were forced to stretch their affordability assessments in a bid to approve loans to higher-risk borrowers.

However, the level of competition is leading to more firms leaving the market which will impact on future rates offered to new buyers and remortgaging customers.

The report adds:

“Challenging conditions have also led some firms to leave the market with others expected to follow, especially as the trend for five-year fixes is likely to reduce consumer activity in the mortgage market.”

“Greater competition for fewer borrowers has seen smaller lenders increasingly targeting higher risk borrowers.”

“More firms chasing a smaller number of consumers has led to four firms (Tesco, Sainsburys, Secure Trust and Magellan Homeloans) ceasing to lend.

“We expect to see further firms ceasing to lend in the near to medium-term.”

Do you share the FCA’s concerns regarding Help to Buy and the lending sector?

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