The Government’s help to buy scheme and mortgage mis-selling?
The introduction of the second phase of the help to buy scheme is opening for applications. It aims to encourage lenders to offer more high loan to value mortgages, by providing a government backed 15% insurance policy for the banks, meaning borrowers need only find a 5% deposit to buy property worth up to £600,000.
The government guarantees the property in the event of default or repossession, covering part of the lenders losses. However, will borrowers be left exposed to bad lending decisions?
Royal Bank of Scotland and Lloyds Banking Group have signed up to the scheme and mortgages will be available under the NatWest, RBS and Halifax brands. The scheme will be open to applications from next Monday and will require borrowers to satisfy income checks and “stress testing” to ensure they can afford the new “guaranteed” mortgages.
Is there still a risk for borrowers?
The Treasury said the scheme: “Will be set to encourage as many lenders as possible to participate in the scheme, while protecting the taxpayer.” There is not much talk of protecting the borrower! Some have branded the scheme ‘help to sell’ and warn that it will overheat the housing market.
Lenders must be concerned about the risk of repeating past mistakes, especially when lending on 95% value of the property.
Under the Mortgage Conduct of Business Rules, lenders must ensure that mortgages are suitable and affordable. In the face of such encouragement to lend, one wonders if enough care will be taken to ensure borrowers can afford these mortgages, including the real risk of future interest rate rises.
The very real concern is that lessons have not been learnt from the recent past. I have concerns that the scheme will result in more cases of mortgage mis-selling.
Redress Law specialise in financial mis-selling cases and especially mis-sold mortgages and pensions.
