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Market Oracle FREE Newsletter

Urgent Stock Market Message

New Help to Buy Mortgages Halifax, RBS, Nat West, HSBC, Virgin Money, Aldermore, Santander

Housing-Market / Mortgages Oct 11, 2013 - 02:02 AM GMT

By: Nadeem_Walayat


David Cameron brought forward the Help to Buy scheme phase 2 by 3 months to 7th of October 2013 to help kick start a UK housing market lead election economic boom which means that despite the governments five year fixed term date for a May 2015 general election, in reality the election could come at anytime between May 2014 and May 2015. Therefore the stronger the economy the more election cards David Cameron will have to play in the run up to the next general election.

The help to buy scheme phase 2 extends the government loan guarantee to all home buyers (not just new builds for phase1), which simply leverages home buyers with just 5% deposits upto 20%. I.e. if you have a £25k deposit then as of Phase 2 (as far as the banks are concerned) you now have a £100k deposit as the government now guarantees the banks against losses on the additional £75k (15%). The effect of this is to greatly extend the amount of debt that banks are willing to lend and thus home buyers can afford higher priced homes.

Pre Help to Buy Phase 2

A £25k deposit at 80% LTV would only allow for a maximum mortgage loan of £125,000.

As an example a couple on a combined income of £60k with a £25k deposit would only be able to borrow a maximum of £125k on an LTV of 80%, and thus afford to buy a property in the £150k price range.

Post Help to Buy Phase 2

Now a £25k cash deposit at the same effective 80% LTV will allow a home buyer to borrow upto a maximum mortgage loan of £500,000 at an actual LTV of 95%! Which represents a huge potential expansion in borrowing capacity, subject to earnings.

As an example a couple on a combined income of £60k with a £25k deposit would now be able to borrow a maximum of £210k on an LTV of 95% (effective 80% LTV), and thus now be able to buy a property in the £235k price range, some £85k higher than last week.

New Help to Buy Mortgages

During the past week many banks have been busy announcing their Help to Buy 95% (80%) mortgages as illustrated below-

Bank Interest Rate Fix Fee
Halifax (Tax payer bank)
2 years
RBS / Nat West (Tax payer bank)
2 years
RBS / Nat West (Tax payer bank)
5 years
HSBC From Dec 2013    
From Jan 2014
Aldermore From Jan 2014    
Virgin Money From Jan 2014    
Barclays Pending    
Nationwide Pending    

Will Help to Buy Phase 2 Create a Housing bubble?

The coalition government politicians don't think so. But in reality off course it will because the DEMAND for mortgages could literally DOUBLE! The government has initially ear marked £12 billion towards the scheme which with an average guarantee of £40k would be enough to cover 300,000 Help to Buy mortgages, enough financing for about a years worth of expected demand.

Thus huge extra demand and limited supply means soaring house prices as I warned before the start of Phase 1 in March 2013.

20 Mar 2013 - George Osborne Boosts UK Subprime Housing Market Ahead of Election Boom

Creating a UK Subprime Housing Bubble

The chancellors announcement of £130 billion mortgage guarantees effectively amounts to seeking to ultimately create a UK version of U.S. Fannie Mae and Freddie Mac that will eventually blow up in spectacular style as more and more house buying voters expect to be bribed at each election and therefore the £130 billion will mushroom to one day stand at well over £1 trillion of liabilities, off course the bust will come AFTER the next housing boom, so this and the next government need not worry themselves for the consequences of creating a UK subprime housing bubble as the consequences of which tax payers will be liable for in a decade or so's time which means another financial crisis as this repeats the SAME mistakes of mortgage backed securities i.e. the lenders are not liable for the risks so can take on more risky loans for commission as the liabilities will be with tax payers.

This scheme will be extended from the 1st of Jan 2014 to allow prospective home buyers to buy ANY property (not just new builds) with the government financing 20% of a deposit upto £600k, or £120

My most recent in-depth analysis of Mid August 2013 ( UK House Prices Bull Market Soaring Momentum, 10% Inflation by October? ) concluded in an expectation for UK House prices to be rising by more than 10% per annum on release of October 2013 data in November and by 12% per annum for January 2014 data, with further expectations for 10%+ price momentum to continue into at least mid 2014 as illustrated by the below graph.

And as illustrated by this recent video -


The effect of INFLATING house prices at a rate of AT LEAST 10% per annum WILL result in PANIC BUYING as people will FEAR waiting to buy, especially as from now on it is a case of OFFERS OVER ASKING PRICES for MANY and an expanding number of areas of the country that will likely see house prices being marked SHARPLY HIGHER over barely a few weeks ago in response to the increased footfall of prospective buyers as the house prices boom shockwave's continue to emanate out of the London epicentre in increasing waves of magnitude.

Help to Buy - Help to Elect a Conservative Government

Soon home owners will be seeing their house values rising at a monthly rate that is greater than their earnings and thus will be far more inclined to vote Conservative in gratitude for the increase in their paper wealth, despite the fact that it is NOT real wealth but just a means of creating MORE debt which my next in-depth analysis will explain at length - to get this analysis in your email in box, ensure you are subscribed to my ALWAYS FREE Newsletter.

Source and Comments:

Nadeem Walayat

Copyright © 2005-2013 (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of four ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series.that can be downloaded for Free.

The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 600 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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