Help-To-Buy Scheme

Written on 15 August 2013

On the 20 March 2013, Chancellor George Osborne announced new plans to help individuals procure their own homes in the form of the Help-To-Buy Scheme.

The scheme is an extension of its predecessor, FirstBuy, which was aimed exclusively at first time buyers. The new scheme comes in two parts; an equity loan for new-build homes only, or the offer of a mortgage guarantee to assist buyers struggling to meet deposit requirements to secure a mortgage. The application doors for equity loans opened on 1 April 2013, with mortgage guarantees set to launch in January 2014.

Unlike its predecessor, the help to buy scheme is available to all. The conditions do require that the property is not purchased as a buy to let, and must be the purchaser’s primary place of residence, sub-letting is strictly not allowed. The equity loan scheme applies to homes worth up to £600,000, providing that at least 5% of the property price is provided by the buyer. The government will then lend up to 20% of the purchase price.

No fees are charged on this loan for the first 5 years of ownership. In the 6th year, a charge of 1.75% of the loan’s value will arise, increasing each year using the Retail Prices Index plus 1%.

While recent statistics have shown that 10,000 applications have already been submitted, the scheme is set to help 74,000 homebuyers during the next three years. The government is offering £12bn-worth of guarantees to lenders to fund £130bn of lending. Local minister Eric Pickles has recently been cited praising the success of help to buy, helping to kick start property growth around the country.

The results, however, are still yet to be seen and some economists remain unconvinced. The government is not offering a free 20% loan, but is providing access to much higher loan-to-value mortgages that may in turn prove quite costly, alongside any charges that may be incurred on the equity loan. Concerns that we are heading for another property bubble grow as a result of this government initiative, as the evidence for property prices rising is clear. Savills recently raised its predicted rise for 2013 from 0.5pc to 3.5pc, as mortgage rates are expected to stay down because of the Help-To-Buy scheme.

As growth continues, so will the 5% deposit required to apply, extending the barriers of entry to the scheme. So in the long run, who is the Help-To-Buy scheme helping?