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Thousands of home buyers have been getting onto the property ladder thanks to the Government’s Help to Buy scheme, which was launched last April. However, brokers and lenders are warning that rising house prices, mortgage pricing and reasonable deals outside of Help to Buy could see the scheme being pulled before its due end date. The Help to Buy equity loan and the guarantee scheme, launched last October, has helped more than 20,000 borrowers access low deposit mortgages.
The equity loan scheme, available for new-builds only, includes a loan from the Government of up to 20% of the property price, which is interest free for five years. It then starts to accrue charges starting at 1.75%. This part of the scheme has attracted over 14,000 borrowers and will end in March 2016. The second part of the scheme provides a guarantee to the lender, of up to 15% of the mortgage, in return for a fee from the financial institution, and the borrower only has to provide a 5% deposit. This has helped more than 6,000 home buyers and is set to continue until October 2016.
Over-inflated house prices are cited as being the biggest threat to the success of Help to Buy. With average prices now just 3% less than their mid-2007 high, critics say the scheme could help push prices even higher, creating a housing bubble that will lock even more first-time buyers out of the market. The argument against this theory is the fact that average house price figures have been pushed up by the London and the South East regions, whilst Help to Buy is a nationwide scheme.
The other factor that may sound the death knell for Help to Buy is the fact that, although subsidised by Government, lenders are not providing particularly competitive mortgage deals for those taking up the scheme. For example; Norwich & Peterborough currently offer a two-year fixed rate at 4.99% with no fee for first-time buyers. The lowest rate for a Help to Buy equity loan mortgage is currently available from Leeds Building Society, which is a two-year fixed rate at 2.5% with a £199 fee. Sounds good, until your bear in mind that you still have to pay back the equity loan, which of course, could be 20% of the purchase price.
The general consensus from mortgage brokers suggests that the guarantee side of the scheme will end early, as allowing people to re-mortgage doesn’t really help move the market. The equity loan side of Help to Buy is judged to have the best chance of making the biggest impact, as it helps buyers as well as builders. This is why around one in five brokers expect that side of the scheme to be extended.
Sources: thisismoney.co.uk, helptobuy.org.uk (image courtesy of telegraph.co.uk)
