IMPORTANT UPDATE - View our policy and actions in response to the COVID-19 outbreakREAD MORE

Helpful Advice

The Help to Buy scheme

The Help to Buy scheme

By Kris White

Part 2 of the Government’s Help to Buy scheme was introduced last week; 3 months ahead of schedule. The early implementation indicates how successful the Prime Minister believes the first part was.

Whereas part 1 was limited to the purchase of new build homes this new mortgage guarantee scheme also covers pre-owned properties up to the value of £600,000. Buyers will once again be able to borrow up to 95% of a property’s value but the difference this time around is that the Government will guarantee part of the loan. The scheme is only available to owner occupiers.

The Prime Minister promised the Help to Buy scheme would help thousands of people to “put down roots and raise a family” by allowing them to buy a house with a deposit of just 5%.

Lenders signing up to the scheme pay a fee to the Government who in return provide a seven-year taxpayer guarantee covering 15% of the loan value. That guarantee can be called in if the borrower defaults.

Prior to the introduction of the Help to Buy scheme property prices in London have, according to the ONS, risen by 9.7 per cent in the year to July, while those across all of the UK rose by 3.3 per cent.

The Business Secretary of the coalition Government Vince Cable; has warned that the scheme could cause a fresh housing bubble. However, RBS and its subsidiary NatWest are taking the risk and launching “no fee” deals at interest rates of 4.99% for two years or 5.49% for five years. Halifax is already in the market while Virgin Money and Aldermore Bank plan to launch their offers early next year. “It is going to accelerate more people going into the market, so the number of mortgage applications will increase and that will put more pressure on lenders and their [loan] processing,” said David Hollingsworth of broker London & Country Mortgages. “But in terms of gross [mortgage] lending we are about less than half where we were in 2007.”

The housing market for first time buyers is still in the doldrums; first time buyers who are trying to get onto the housing ladder are struggling if they do not have any financial support from family members. Even if a potential purchaser has a good job they are still struggling to raise a deposit. The scheme is there to help these people buy their first home without having to pay a large deposit. It will add more competition into the market but may result in a further boost to property prices.

Those taking advantage of the scheme will still have to ensure that they can afford the monthly repayments; the Treasury has said that there will be tough checks.  

Prime Minister David Cameron, said: “Too many hardworking people are finding it impossible to buy their own home as people who can afford the monthly mortgage payments but haven’t got rich parents and can’t pay the deposit up front. There is a need for Government to act. Buying your first home is about far more than four walls to sleep at night. It is somewhere to put down roots and raise a family. It’s an investment for the future. Above all, it’s a sign that everything you’ve put in has been worth it. Our Help to Buy equity loans, have already helped over 15,000 people buy a new home. But we have got to go further and finish the job we have started.”

Chancellor George Osborne said: “Too many people are still being denied the dream of owning their own home, which is why we have brought forward the launch of this scheme, so as of today borrowers can start applying for a mortgage with a 5% deposit.”