Will the mortgage guarentee go ahead?

Graham_Devon

Interesting side effect of Help to Buy come 2014....

Parents will find it much easier to help their children buy a house, as they will only need to offer up a 5% deposit....

Jonathan Harris, of Anderson Harris, a mortgage broker, says of the Help to Buy scheme: "Parents who may have worried about helping children with sizeable deposits will appreciate a scheme that could limit their involvement to 5 per cent of the purchase price, enabling them to keep hold of savings for their own outgoings or retirement planning.

"Parents who plan to buy a property for children at university, for example, will need to produce a much smaller down payment."

Alternatively, the scheme could enable some parents to stay in the family home rather then moving to a smaller one in order to release capital for their children.
Mark Harris, head of SPF Private Clients, another mortgage broker, says: "There has been a growing trend for parents, and increasingly grandparents, to move to a smaller property in order to free up money to help their children or grandchildren on to the housing ladder.

"The introduction and expansion of the Help to Buy scheme means this is no longer necessary. As long as parents or grandparents can help with a modest 5 per cent deposit, there is no need to sell up. Funds can be kept to pay for retirement and other outgoings."

It's being called an unintended side effect, meaning prices could rise even further than they otherwise would have done. While you can't buy a second home, there is nothing stopping parents putting up 5% for the kids and leaning oin the taxpayer for the rest. Again, this will lead to parents who are more willing to jump in due to the much lower level of risk, rather than holding back due to holding more of the risk.

A second unintended side effect Mark Harris states is that you may create a scenario where it's beneficial to put up less of a deposit and spend the money you were saving for a 10-20% deposit on white goods and furniture, meaning the taxpayer is exposed when it wasn't even neccesary.

Estate agents suggest a big pitfall of this scheme is that buyers are already buying something they wouldn't neccesarily have bought simply because they feel they are getting "free money" and therefore extend further than they would have done.

One pitfall of the scheme is the risk that buyers might be less discerning in their choice of property if they feel that they are getting "free" money to buy it.

Jeremy Leaf, a north London estate agent and housing spokesman for the Royal Institution of Chartered Surveyors, says: "Don't buy something you wouldn't have bought had Help to Buy not existed. The assistance is a loan, not a gift.

Thrugelmir

Graham_Devon wrote: »

Interesting side effect of Help to Buy come 2014....

Parents will find it much easier to help their children buy a house, as they will only need to offer up a 5% deposit....

and if gifted deposits aren't accepted by lenders?

Thrugelmir

cepheus wrote: »

As everyone apart from Osborne seems to realise, however, the last house price boom didn’t end particularly well.

The complete absence of Gordon Brown, who thought he was leaving no 10 to head up the World Bank suggests otherwise.

Cannot remember another political figure that has so completely vanished off the radar after so many years in office.

ManAtHome

Thrugelmir wrote: »

and if gifted deposits aren't accepted by lenders?

Price of brown envelopes could SOAR.

Thrugelmir

ManAtHome wrote: »

Price of brown envelopes could SOAR.

Audit trail?

grizzly1911

Thrugelmir wrote: »

and if gifted deposits aren't accepted by lenders?

Why wouldn't they be, there is nothing stopping people giving their offspring money, providing they have it and aren't denuding themselves.

I would have thought evidencing serviceability may be more of a problem. More so for student purchases:eek:.

Thrugelmir

grizzly1911 wrote: »

Why wouldn't they be, there is nothing stopping people giving their offspring money, providing they have it and aren't denuding themselves.

Lenders can set whatever criteria they wish. The ability to save money demonstrates financial discipline. So a way of filtering down the applications that may come flooding in.

grizzly1911

Thrugelmir wrote: »

Lenders can set whatever criteria they wish. The ability to save money demonstrates financial discipline. So a way of filtering down the applications that may come flooding in.

I agree the ability to save money demonstrates financial discipline. Not so sure lenders would be too bothered if it were a genuine gift and not a loan.

Thrugelmir

grizzly1911 wrote: »

I agree the ability to save money demonstrates financial discipline. Not so sure lenders would be too bothered if it were a genuine gift and not a loan.

Demand exceeds supply. So lenders can afford to raise the bar to whatever level they wish. Mortgage lending criteria has tightened noticeably in past 18 months. No reason to suggest that there is going to be any relaxation soon either.

As I've said before quite possible that there's going to a reduction in mortgage debt levels of around £250 billion to £400 billion in the coming years. So a long way down the road to go.

ManAtHome

Thrugelmir wrote: »

Audit trail?

I doubt they'll let the major "stakeholders" (ie taxpayers**) perfrom any audits, and not too sure the back-stopped banks will bother too much (now I like bonuses, and audits should be done (but we have 20% headroom) - there's only one way to find out...).

**The FCA have yet to be proven less incompetent/corrupt than the FSA.