Why the UK's Help to Buy Program May Not Have Entirely Helped Homeowners

In this commentary DBRS Morningstar provides an analysis of the Help To Buy equity loans within UK residential mortgage-backed securities (RMBS). First launched a decade ago, HTB equity loans aim to make homeownership more accessible to people who may otherwise struggle to save a large down payment to secure a mortgage on their own.

In this commentary we explore:

• The intended purpose of the HTB scheme,
• Refinance risk and prepayment difficulties in HTB mortgages,
• Nationale Hypotheek Garantie versus HTB mortgages, and
• Our perspective on HTB mortgages and the ratings impact in residential mortgage-backed securities (RMBS).

As HTB borrowers reach the end of the fixed-rate tenure on their loans, they face refinancing risk. The current inflationary environment, the high interest rates, and the potential decline in property prices could pose too much of a challenge for many HTB borrowers to refinance their loans. This could lead to forced property sales and even defaults in the most extreme cases, ultimately defeating the purpose of the HTB scheme to get FTBs onto the property ladder.