The government’s Help to Buy scheme has been hitting the headlines since it launched last April - but what has the impact been? Here we take a look at the initiative, 10 months on.
The first phase of the scheme was introduced in April last year, and provided equity loans to prospective homebuyers - as long as they buy a new build property. This part of the scheme allows homebuyers with a 5% deposit to borrow up to 20% of the purchase price from the government. The loans are interest free for 5 years, and can be repaid when the property is sold.
A Change of plan
The second phase of the scheme was due to start in January this year, but was brought forward by three months to October last year. This phase of the scheme allows prospective buyers to get a mortgage from participating lenders with a deposit of 5% on properties worth up to £600,000. While most lenders would normally be unwilling to offer a mortgage with such a high LTV (loan to value), the Help to Buy scheme offers a taxpayer funded guarantee to the lender, giving them added protection if the borrower defaults.
How is it going?
Since the first phase launched last April, house builders have reported an increase in activity and almost 13,000 homes have been sold this way. The second phase of the scheme has been more controversial, with some economists and other commentators warning of a possible housing bubble that could emerge if prices are artificially inflated. The argument is that the second phase of the scheme increases demand for homes without increasing the supply. So far the jury appears to still be out on whether we’re approaching a housing bubble or not.
In December last year, the Bank of England announced that from January, Funding for Lending - which allows banks to borrow money cheaply for the purpose of lending - would no longer apply to mortgage loans. This came after calls for the Bank to prevent a housing bubble created by artificially inflated prices.
Which lenders are signed up?
The list of lenders involved in the scheme has been steadily growing since the launch. Those currently offering Help to Buy mortgages are:
- Bank of Scotland
- Virgin Money
Although many lenders have not signed up to the scheme, competition has meant that some have begun offering 90-5% LTV mortgages at competitive rates to attract first-time buyers with small deposits.
In many ways it’s still too early to tell what the impact of Help to Buy will be, but it looks set to be a very interesting year for the housing market.