Homes England boss defends Help to Buy risk model

The Homes England chief has defended the organization against claims that taxpayers may be overexposed to the risk of loss on his Help to Buy loan portfolio.

Speaking to Members of the Housing, Communities and Local Government Committee yesterday, Homes England Managing Director Peter Denton was asked how much risk the taxpayer bears under the Help crowdfunding scheme. to Buy.

Tory Milton Keynes North MP Ben Everitt said: “There was a report from the National Audit Office in 2019 which pointed out that Homes England may be overexposed on the program. Have you assessed, in the event of a market downturn, how many of these loans would be written off and how much that would cost the taxpayer?

Denton responded that the Help to Buy book was already rated “relatively conservatively” on how mortgage lenders rate their loan and property portfolios.

He said, “It’s valued as if everyone is repaying their loans today, at today’s values ​​and on that basis.

“That’s when we apply a certain set of expected loss characteristics. “So we take some scenarios, and they can go from very, very minor, a 1%, value changes throughout scenarios that relate to around 11% and 12% and that are based on data from the ONS.

“On top of that, we’re focusing this analysis on stress testing, both the levels of arrears, and also other factors that would typically go into a downturn.

“And then we focus again on, in technical jargon, things called loss upon default, so if a default did occur, what would be the resultant loss of that situation.

“Since there is no hard data on the fact that the agency working with the ministry takes a relatively conservative view and assumes a loss of around 35% in the event of default, this is quite high.

“This finally results in the examination of the various security positions that we have.

“If I put it all together, it’s already a relatively solid process. “And there are the monthly stresses, and more importantly, the deep and deep quarterly stresses that we seek to examine. “

However, Denton said Homes England analysts need to make a value judgment because certain factors make risk modeling more complex.

Denton added, “One of the biggest management judgments we have in our accounts is the valuation and approach to help buying.

“And it’s not because it’s inherently risky, it’s just that it’s often a value judgment.”

For example, he said normal housing market risk modeling would use house price data from the Office for National Statistics, but an additional layer of analysis is needed for the Help to Buy book because the ONS index includes older properties as well as new construction, while Purchase Assistance only covers new homes.

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