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Housing and mortgages


It’s been another active year in housing, both on the political agenda and in the public eye with the papers continuing to report every upturn, downturn and anomaly in the housing market. The prominence of housing initiatives in the 2013 Budget, when Help to Buy was launched, is a testament to the political and economic capital to be gained by making improvements to the housing market.


Help to Buy


Top of the political agenda has been the two Help to Buy schemes. Choosing to give two housing-related schemes the same name has created a lot of confusion, particularly when both schemes are designed to help consumers buy a home with a five per cent deposit, albeit through different mechanisms. Help to Buy: equity loan launched on 1 April 2013 and has already been a big success. In the first four months of the scheme over 10,000 new homes had been reserved by consumers. The scheme is a reincarnation of FirstBuy and works by requiring the borrower to put down a deposit of at least five per cent of the purchase price, obtain an equity loan of up to 20 per cent and take out a mortgage to fund the remainder. The equity loan is interest-free for the first five years and must be repaid when the property is sold or after 25 years. The scheme is available on new homes only, up to a limit of £600,000. However the restrictions on borrower’s incomes that were in place under FirstBuy have been removed.


Help to Buy: equity loan is clearly having an impact on the housing market, but its effects are mostly limited to the new build market, but Help to Buy: mortgage guarantee has the potential for a more fundamental change to the market.


The Help to Buy: mortgage guarantee scheme aims to increase mortgage lending at 80-95 per cent loan to value to creditworthy consumers. The guarantee will be launched in January 2014 and be open for three years. The guarantee will remain in place on the property for seven years providing that the borrowers are still eligible. The mortgages under the scheme must: • Be on a residential property • Be taken out by an individual rather than an incorporated company • Be a repayment mortgage, not interest-only • Meet minimum requirements for creditworthiness • Must not be benefiting from any other government scheme (such as NewBuy)


• Borrowers must not have any interest in other property either in the UK or overseas and must sign a declaration to this effect


• Borrowers must have their income verified, the loan must meet responsible lending requirements and the borrower must not be credit-impaired


Flooding


One point of concern over the previous year was the rapidly approaching end date of The Statement of Principles – an agreement between government and the insurance industry which ensures the availability of flood insurance for high risk properties. With yet more heavy rainfall and the subsequent floods experienced in 2012/13, the ability for consumers to insure their home against such events was once again thrust into the public eye. The Statement of Principles were due to expire in June 2013 but were extended by one month to July 2013 which allowed an 11th hour agreement to be reached between government and insurers to provide a framework for flood insurance going forwards.


The agreement is subject to consultation and may yet be affected by State Aid requirements, but would mean that high risk properties go into a specific ‘pool’ for reinsurance, whilst those able to obtain insurance on the open market would continue to do so. There are some excluded properties from the Flood Re system and the BSA argued against these exclusions in our response to the consultation, however the Flood Re system looks like a good option for providing peace of mind for consumers and lenders alike that most high risk properties will continue to be insured.


Green Deal


The Government expected a slow start to their new Green Deal programme and were proved to be right when the first statistics were published.


By way of background, the existing housing stock is responsible for approximately a quarter of the UK’s carbon emissions and the Government has identified residential housing as a key area for improvement in order to meet the carbon reduction targets set out in the Climate Change Act 2008. The Green Deal is an initiative which aims to increase energy efficiency in existing residential properties by encouraging investment in improvement measures. Under the Green Deal, consumers can make improvements to their home to improve its energy efficiency, the cost of which will be paid in instalments through future energy bills. The ‘golden rule’ of Green Deal is that the expected savings from improvements should be greater or equal to the cost added to the energy bill. The period of repayment should also not exceed the lifetime of the measure.


Sponsored by 20


...continued www.bsa.org.uk


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