MAIN HELP TO BUY MARK2 THREAD -

[The Knimbies who say No]

As has been pointed out before, HTB2 is not an upfront taxpayer funded deposit scheme like HTB1. The Government(taxpayer) will be standing as guarantor (with an as yet undisclosed indemnity premium paid for by the lender/borrower) for a loan over 80% up to 95%. For the UK taxpayer to be on the hook as described would require 675000 borrowers under the scheme all to default, for the residual value of the properties to be less than 80% of current value and for the indemnity scheme to be unfit for purpose.

SMI?

edit to expand- does encouraging someone to take out an HTB2 deal place additional risks on UK taxpayers, outside those directly associated with the loan? SMI seems like an obvious place to start asking.

We ought to be finding out a bit more about the charges for the mortgage guarantees soon.

Edited September 23, 2013 by The B.L.T.

[campervanman]

SMI?

Or any other scheme the government of the day use to keep house prices at the level they want. That doesn't however make the op's numbers correct.

[campervanman]

SMI?

edit to expand- does encouraging someone to take out an HTB2 deal place additional risks on UK taxpayers, outside those directly associated with the loan? SMI seems like an obvious place to start asking.

We ought to be finding out a bit more about the charges for the mortgage guarantees soon.

You would expect the OBR to have a say on that.

[Fully Detached]

I think we ought to get these figures cemented as inarguably correct and then start oublicising them. If it's correct that 100% of taxpayers will be on the hook for a scheme that benefits only 3% of the population, it makes free child care for 3-4 year olds look like a drop in the ocean.

In the email conversations I've had with my local MP, it's clear he hasn't got the foggiest idea how to add 2+2, so any figures like this that I can present t him would be much appreciated.

Can anyone verify (not knocking the original poster, but confirmation would be great).

[RentingForever]

As has been pointed out before, HTB2 is not an upfront taxpayer funded deposit scheme like HTB1. The Government(taxpayer) will be standing as guarantor (with an as yet undisclosed indemnity premium paid for by the lender/borrower) for a loan over 80% up to 95%. For the UK taxpayer to be on the hook as described would require 675000 borrowers under the scheme all to default, for the residual value of the properties to be less than 80% of current value and for the indemnity scheme to be unfit for purpose.

I think the danger is the effect this will have on more general policy. With this much skin in the game the Government will do absolutely anything it can to avoid a fall to 80% of current values.

[Bruce Banner]

I think the danger is the effect this will have on more general policy. With this much skin in the game the Government will do absolutely anything it can to avoid a fall to 80% of current values.

But, when the government has fired the last of it's ammunition, prices will fall to 60% or 70% of current values.

[porca misèria]

As has been pointed out before, HTB2 is not an upfront taxpayer funded deposit scheme like HTB1. The Government(taxpayer) will be standing as guarantor (with an as yet undisclosed indemnity premium paid for by the lender/borrower) for a loan over 80% up to 95%. For the UK taxpayer to be on the hook as described would require 675000 borrowers under the scheme all to default, for the residual value of the properties to be less than 80%95% of current value and for the indemnity scheme to be unfit for purpose.

Corrected for you. The taxpayer is on the hook between 80 and 95%[1].

[1] Or is it 75 rather than 80? I had a vague impression the guarantee was 20%. to which you'd add that 5% deposit.

[porca misèria]

I think the danger is the effect this will have on more general policy. With this much skin in the game the Government will do absolutely anything it can to avoid a fall to 80% of current values.

Fannie and Freddie lasted many decades before taxpayers were on that hook.

[The Knimbies who say No]

Corrected for you. The taxpayer is on the hook between 80 and 95%[1].

[1] Or is it 75 rather than 80? I had a vague impression the guarantee was 20%. to which you'd add that 5% deposit.

The point I think campervanman meant was that the maximum 15% Govt guarantee is covered by an indemnity policy which the lenders pays to obtain the protection. The fee levied is supposed to represent the risk of default, so the scheme (if correctly priced) should be self financing. This is, of course, also the reason why it ought to be a complete failure at tempting volume lenders to lend more at high LTV- they don't get any protection for their fee since it is set by the risk of default. By definition the scheme must be a failure.

The only way HTB2 can be run in the manner Osborne would like (ie more lending) is to underprice the fee relative to the risk, leading to taxpayers assuming most of the responsibility for the difference*. HTB2's success or failure lies entirely with whether the risk will be reflected properly in the fees to get the guarantee. One can only imagine the discussions that are taking place now regarding fee levels.

*The lender retains a 5% liability for the guaranteed portion, in a bid to encourage prudent lending.

It's just the same opposing forces in lending as can be seen everywhere. Govts say they want prudent lending but every policy opportunity they get they are pushing anything but.

[Guest TheBlueCat]

Fannie and Freddie lasted many decades before taxpayers were on that hook.

That's the problem isn't it? What starts as a fairly small obligation builds over time into a sizable proportion of the housing market. It's easy to see an end game where the government is on the hook for a material percentage of the entire housing market. Even 10% of the total comes in at 500B.

[TheCountOfNowhere]

is there any talk of fls / htb protest anywhere.

surely the savers must be ready for a mass withdrawl protest...i certainly am.

have you seen the sick joke of the interest rates on offer.

the system is broken and something has got to change.

[The Knimbies who say No]

is there any talk of fls / htb protest anywhere.

surely the savers must be ready for a mass withdrawl protest...i certainly am.

have you seen the sick joke of the interest rates on offer.

the system is broken and something has got to change.

The pace is slow, but options are being expended. As Petri Dish said on the WB BS thread, now savers cannot be squeezed any further, the only place left to get money from is rates paid by borrowers. It's a shame we have to exhaust all other options before choosing the right path, mind.

[TheCountOfNowhere]

The pace is slow, but options are being expended. As Petri Dish said on the WB BS thread, now savers cannot be squeezed any further, the only place left to get money from is rates paid by borrowers. It's a shame we have to exhaust all other options before choosing the right path, mind.

i dont think i want to wait any longer...its time the 99% protested.

[ReggiePerrin]

I'm curious whether any thought has been given to the possible impact HtB2 might have on the borrower's behaviour should house prices crash (don't laugh; I know houseprices only ever go up.. so this is purely theoretical )

I borrow x number of '000s on a HtB2 mortgage and put down my parent supplied/borrowed 5% deposit; house prices go up; no problem. House prices drop 5% and on paper I've lost my deposit. houseprices drop 10% and I've lost my deposit & the taxpayer is in trouble to the tune of 5%.. house prices drop 20% and look like they might drop further.

What do I do? Walk away from the property losing only my 5% deposit, but owing nothing to anyone, the taxpayer picks up the bill, or do I risk prices falling even further and end up owing the bank money as well as losing my deposit??

Assuming the latter is the answer; How many press reports of HTB2 borrowers posting their keys back through the Banks letterbox will it take to cause a stampede?

(i'm sure the bank will try to recover any losses not covered by the Government scheme from the borrower)

[doomed]

is there any talk of fls / htb protest anywhere.

surely the savers must be ready for a mass withdrawl protest...i certainly am.

have you seen the sick joke of the interest rates on offer.

the system is broken and something has got to change.

Mine has been out a while and I remove what ever is left over at the end of each month. I will never hold fiat or stocks again the game is far too rigged for my liking.

Edited September 23, 2013 by doomed

[The Knimbies who say No]

I'm curious whether any thought has been given to the possible impact HtB2 might have on the borrower's behaviour should house prices crash (don't laugh; I know houseprices only ever go up.. so this is purely theoretical )

I borrow x number of '000s on a HtB2 mortgage and put down my parent supplied/borrowed 5% deposit; house prices go up; no problem. House prices drop 5% and on paper I've lost my deposit. houseprices drop 10% and I've lost my deposit & the taxpayer is in trouble to the tune of 5%.. house prices drop 20% and look like they might drop further.

What do I do? Walk away from the property losing only my 5% deposit, but owing nothing to anyone, the taxpayer picks up the bill, or do I risk prices falling even further and end up owing the bank money as well as losing my deposit??

Assuming the latter is the answer; How many press reports of HTB2 borrowers posting their keys back through the Banks letterbox will it take to cause a stampede?

(i'm sure the bank will try to recover any losses not covered by the Government scheme from the borrower)

You are liable for any shortfall in HTB2- it is a guarantee applied to a regular mortgage, not an equity loan as with HTB1.

[ReggiePerrin]

You are liable for any shortfall in HTB2- it is a guarantee applied to a regular mortgage, not an equity loan as with HTB1.

I appreciate it's not an equity loan like HTB1.. it's a 15% guarantee on mortgage, so I believe my original question is still valid? (badly worded probably, but still valid )

Edit.. This scheme is probably worse than HTB1 because it is a guarantee ... you can't run away from the HTB1 equity loan

Edited September 23, 2013 by ReggiePerrin

[The Knimbies who say No]

I appreciate it's not an equity loan like HTB1.. it's a 15% guarantee on mortgage, so I believe my original question is still valid? (badly worded probably, but still valid )

You still owe the money though. I guess the guarantee covers anything non-recoverable after your bankruptcy or if you disappear or some other reason for a bad debt. You make it sound as if you just decide not to pay one day, move in next door, and no-one bothers you again. I doubt it'll work like that.

[ReggiePerrin]

You still owe the money though. I guess the guarantee covers anything non-recoverable after your bankruptcy or if you disappear or some other reason for a bad debt. You make it sound as if you just decide not to pay one day, move in next door, and no-one bothers you again. I doubt it'll work like that.

Apparently a lot of people are confused by the meaning of 'Interest only mortgage', so ...

I went to quite a few house parties in the 90's that were thrown the night before people posted their keys through the door of the building society/bank, now people are being offered a 15% taxpayer funded gold plated guarantee... what can possibly go wrong

[The Knimbies who say No]

Apparently a lot of people are confused by the meaning of 'Interest only mortgage', so ...

I went to quite a few house parties in the 90's that were thrown the night before people posted their keys through the door of the building society/bank, now people are being offered a 15% taxpayer funded gold plated guarantee... what can possibly go wrong

Ha, well if it's sheeple misconceptions we're talking about, the sky's the limit. ..

[zugzwang]

Do we know how many banks have committed to HTB1 & 2? Is it the entire industry? One way of confirming that risk is being underpriced would be if the private sector began to be crowded out of the market by HTB lenders.

[Blue Peter]

Something interesting:

The chancellor believes he got the thumbs up (in private) for his ambitious mortgage-guarantee scheme, Help to Buy, from the newish Canadian governor of the Bank of England, Mark Carney.

...

Which is why I was intrigued to be told by a colleague of Carney that the governor doesn't believe he has (in fact) underwritten the chancellor's housing market support scheme at all - and that perhaps the biggest challenge facing Carney is how to signal his distance to the world, without embarrassing and alienating his patron, George Osborne.

From Pesto

Peter.

[Bloo Loo]

Apparently a lot of people are confused by the meaning of 'Interest only mortgage', so ...

I went to quite a few house parties in the 90's that were thrown the night before people posted their keys through the door of the building society/bank, now people are being offered a 15% taxpayer funded gold plated guarantee... what can possibly go wrong

No,

BANKS are proposed to be offered a 15% guarantee...which they will pay for and add the cost to the borrowers fees.

The borrower gets nothing.

[TheCountOfNowhere]

Something interesting:

From Pesto

Peter.

Believe what they do, not what they say.

[zugzwang]

No,

BANKS are proposed to be offered a 15% guarantee...which they will pay for and add the cost to the borrowers fees.

The borrower gets nothing.

That's not how I see it.

15% guarantee = reduced bank risk exposure = more lending @ risk = higher profits. The borrower gets a mortgage which they wouldn't have qualified for before.