What is Help to Buy?
Help to Buy is the latest government initiative aimed at giving private developers an incentive to build more homes by helping locked-out buyers gain access to the finance needed to buy them.
It is an umbrella term for two quite different schemes both focused at buyers with low deposits: equity loans solely for new builds and mortgage guarantees for any type of housing.
What is Help to Buy 1?
Someone buying a new-build property can borrow up to 20 per cent of the cost from the government, leaving them to find a 5 per cent cash deposit and a mortgage offer for the remaining 75 per cent. The loan is interest-free for the first five years.
When the property is sold, the government receives back the value of its stake at current market prices, so the actual amount to be repaid increases if house prices rise – and decreases if they fall.
What is Help to Buy 2?
The second, more controversial, part of the scheme aims to boost the availability of higher loan-to-value mortgages by offering lenders the option of purchasing a government guarantee on a portion of the loan.
What property can be bought using the scheme?
Using the equity loan element, buyers can purchase any new build property valued at up to £600,000 from participating housebuilders. A year old in April, the scheme is due to run until 2020. This only applies to property in England: Scotland and Wales have different programmes.
The mortgage guarantee, which is only available from certain lenders, can be used for any type of property, again up to the £600,000 mark. It covers the whole of the UK and is set to run from October 2013 to December 2016.
Neither scheme can be used for interest-only mortgages or for buy-to-let investors.
Who has been using the scheme?
More than 85 per cent of completions under the scheme has been for the equity loan element. To the relief of ministers, 77 per cent of the transactions have taken place outside London and the South East, with first-time buyers making up 88 per cent of those accessing funds.
Is this just fuelling rising house prices?
It seems barely a day goes by without another report of soaring house prices, particularly in London. But there is little evidence yet that this is caused directly by Help to Buy, despite fears the mortgage guarantee element of the scheme in particular, which does not create any new supply of property, could cause a bubble.
Many London hotspots – such as the City of London and Kensington and Chelsea – have seen no Help to Buy loans issued at all. Leeds, which has seen the highest number of Help to Buy loans among England’s local authorities, is only reporting annual house price rises of about 3 per cent. Additionally, at £194,992, the average value of homes bought under the scheme is well below the national average.
However, what is unmeasurable is the scheme’s impact on that most important of housing market drivers: consumer confidence.