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Housing Solicitors

Bank of England “keeping a close eye” on housing market (23 December 2013)

Date: 23/12/2013
Duncan Lewis, Housing Solicitors,  Bank of England “keeping a close eye” on housing market

The government’s Help to Buy housing scheme could be subjected to a cap on the property value limit to help prevent a housing bubble.

The current upper limit for Help to Buy is £600,000. In the first month of the second phase launched in October to help first-time buyers purchase new-build properties, around 2,000 first-time buyers were offered mortgages.

Critics of the scheme say that it could fuel a housing bubble and some buyers may be tempted to take out mortgages larger than their salaries will support.

The Help to Buy scheme is also available to existing homeowners wishing to buy a larger property – the first phase was launched in April this year.

The summer months saw increased activity in the remortgage market, as homeowners took out further loans for home improvements.

The Bank of England has now said that it is monitoring the housing market and will not allow a “free for all” to happen in the mortgage market.

Lenders have already called for an exit date to be set for the Help to Buy scheme – the government underwrites part of the mortgage in the second phase and provides favourable loans to lenders to enable them to offer mortgages to first-time buyers.

The Council of Mortgage Lenders (CML) has said that in November this year the amount of money loaned to homebuyers rose by 30% compared with figures for November 2012.

However, a housing bubble could push house prices spiralling upwards, meaning buyers would need larger mortgages. Currently, the Help to Buy scheme allows first-time buyers to put down deposits of just 5% of the property value, leaving lenders exposed to large debts if homebuyers find they are unable to meet their monthly mortgage payments.

The housing bubble of the late 1980s also saw mortgage repayment interest rates rocketing, leaving many homeowners unable to meet the increase in their monthly mortgage payments – and also leaving some homeowners with negative equity in their properties, meaning their home was worth less than the mortgage they owed on it.

Deputy Governor of the Bank of England Andrew Bailey has said that the housing market is a “key issue” for 2014. He has suggested lenders may need to increase the amount of capital they hold to meet mortgage offers made to customers – and homebuyers may also need to be more closely scrutinised by lenders to make sure they can afford mortgage repayments.

The Bank of England’s Financial Policy Committee has said it would review the government’s Help to Buy scheme and even cap – or halve – the limit homebuyers can borrow if the housing market overheats.

The limit of £600,000 would be halved to just £300,000, however – and in property markets such as London, this may not be sufficient for homebuyers to purchase a property.

The CML is due to review the Help to Buy scheme in September 2014, coinciding with the first anniversary of the launch of the second phase of the scheme.

Duncan Lewis Housing Solicitors

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For expert legal advice on housing issues, contact Duncan Lewis housing solicitors on 020 7923 4020.


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