This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
Financial Secretary on home ownership and mortgage lending.
I’m really pleased to have the chance to speak to you all today.
Now, you’ll know better than most that the dream of home-ownership is of real personal importance to millions of Britons.
I think it’s always been part of our nation’s psyche.
And I think our job, as a government that wants to support hard-working people, is to make home-ownership possible for as many people as possible.
So today I want to talk about:
- some of the issues we as government – and you as lenders – have faced over the last few years
- some of the action we’ve both chosen to take over the last year or so
- and some of the challenges I think we’ll face in the years to come
I’d like to say first though that it is encouraging to talk to you at a time when the market is showing signs of improved health.
The number of transactions this January was 30% higher than twelve months previously.
Mortgage rates – particularly at low LTVs – remain low.
And we’ve begun to see falls at higher LTVs too.
And I think the availability of mortgages at higher LTVs is of real importance.
I appreciate though, that some observers have been concerned by the pace of the change in the market, particularly on house price rises in certain areas.
And these are concerns that the government both recognises, and understands.
But I think it’s important that we put these recent changes in the context of the last few years.
Six years ago, this country went through the world’s largest banking bailout.
And that bailout – of course – had a knock on impact on the mortgage market and instigated a period where first time buyer sales were at half their long-term level, deposit requirements grew, and mortgage rates remained high despite bank rates being at record lows.
And this lack of mortgage finance was feeding through to construction too, with builders consistently citing it as a key factor in the low levels of house building.
Of course, nobody felt the impact of this more than aspiring home-owners, and I would have – particularly young – people coming to my constituency surgery worried that while the dream of their parents’ generation was to pay off a mortgage, the dream of their generation was to get a mortgage.
And it was in that context that government and builders and lenders had to work together to intervene in the market.
First through the NewBuy Ssheme in Spring 2012, which helped make high LTV mortgages available for new build properties.
And then in June 2012, when – with the Bank of England – we launched the joint Funding for Lending Scheme to make loans both cheaper and more available.
But while that scheme was effective at bringing about more price competition at lower LTVs there remained a persistent problem around higher LTV lending.
And Help to Buy – in particular the mortgage guarantee part of the scheme – was designed to tackle that.
I always think it’s worth reminding people that 95% mortgages have been a feature of the UK market for decades.
I know they were the way that I and many of my friends, some of my Ministerial colleagues too, took their first step on the housing ladder.
But after the great recession they more or less disappeared.
At the start of 2008 there were over 750 mortgage products available at 95% LTV.
But a year later – at the start of 2009 – there were 3.
And this was locking thousands of people out of home ownership.
People with steady jobs – who could afford the repayments on a mortgage – but who struggled to save up for the large deposits required.
The Help to Buy mortgage guarantee has bought these products back into the mainstream. And it has been a success.
Last week we published figures showing that over 17,000 people have already bought a home through the equity loan and mortgage guarantee schemes.
And that data – very pleasingly – showed that the vast majority of those people are first-time buyers, buying outside of London and the South East.
It was also good to see that the scheme has been supporting responsible lending, and that the average cost of a house bought under the Mortgage Guarantee – which is £148,000 – and the average cost of a house bought under the Equity Loan scheme – which is £203,000 – are both below the UK average house price.
Again and again, with Help to Buy and with the other schemes, we’ve relied on support from and the cooperation with the mortgage lending industry, the people sitting in this room today.
You’ve carried out a huge amount of work.
You’ve demonstrated a great degree of flexibility.
And we wouldn’t be where we are today without your help.
So I wanted to take this opportunity – on behalf of government – to say a big thank you for everything you’ve done. But I also wanted to take this opportunity to make something else absolutely clear.
The government doesn’t see these mortgage interventions as part of a new ‘business as usual’.
We’ve taken exceptional steps to address an exceptional situation.
And we understand the arguments made by some, that as the mortgage market normalises many of these measures will no longer be appropriate.
That’s why – for example – we’ve shifted the focus of the Funding for Lending Scheme onto business lending.
And that’s why we will keep monitoring the trends in the market so we can make sure that our policies continue to have the right impact.
It’s especially important that we keep monitoring the impacts of our policies because as you’ll all know the world of mortgages doesn’t stand still.
We’ve got the Mortgage Market Review rules coming into full effect later this month, which I know have been a huge area of focus and work for industry, and I’m sure the last movement of the MMR Jab will go smoothly!
Beyond that, the next year will no doubt throw up more new challenges and decisions.
And there are two obvious ones on the horizon that I’d like to discuss quickly.
The first is the implementation of the Mortgages Directive.
Now, I’ve been clear about my views of the merits of this directive.
I’m not convinced of the benefits of these regulations to UK consumers or to UK businesses.
And that’s why our approach to implementing these will be to – wherever possible – minimise the disruption they cause, which will be very much in line with our wider priority of reducing regulations on business.
The second, is that we’ll have to consider the best way of managing the exit from the mortgage guarantee.
As you’ll know, we’ve always been absolutely clear that this is a three year scheme, but I am aware that some in the industry, including the CML, are concerned about the end of the scheme creating something of a ‘cliff edge’.
We do understand these concerns.
But there are mechanisms to adjust the scheme parameters, which we’re confident will help to smooth the transition, and we’ll make a judgement about how best to use those flexibilities according to the market conditions at that time.
So that is something of a whistle-stop tour through the issues we’ve faced, the changes we’ve made, and two of the challenges yet to come.
I know that everyone will be eager to eat but I’d like to leave you with this.
I’m incredibly grateful that myself – and my colleagues at the Treasury have been able to work so closely with you, through what have been some difficult years.
And I think that between us we’ve been able to take steps and introduce measures that will continue to make the dream of home ownership a reality for thousands more people.
You’ve played an incredibly important role in our long-term economic plan to produce sustained growth for the people of our country.
And I’m certain that if we continue to work closely together and if we continue to be honest and frank with one another, then we’ll be able to deal with any further challenges that come our way.