20 Nov Government’s Help to Buy Scheme – Success or Failure?
The government’s Help to Buy scheme has been in the news ever since it was first announced. The initiative, which aims to help first-time buyers onto the property ladder, has met with a lot of criticism. The 15% interest-free loan offered by the government allows buyers to get a mortgage with a deposit of just 5%. While there is support for the scheme, not everyone is convinced.
So, what is the true impact of the Help to Buy scheme?
Lenders report strong start
Halifax and RBS have seen a large number of applications since the extension of the Help to Buy scheme, which now covers all types of buyers and all types of home. Together, the lenders received 2,384 mortgage applications, which in total could be worth £365million. RBS, which has already approved 169 applications, said that the majority were from young couples, who had a joint salary of under £50,000.
PricedOut claim Help to Buy more expensive than renting
However, despite the promising start, the Help to Buy scheme hasn’t been praised by everyone. A campaign group, PricedOut, claims that, in fact, the Help to Buy scheme works out to be more expensive than renting. According to their calculations it is cheaper to rent in every area of the country. In places such as London, the gap between repayments on a 95% loan and renting can be as significant as a few hundred pounds.
PricedOut believe that families are being pressured to get on the property ladder. This is causing them to take on unaffordable levels of debt, when continuing to rent and saving is a more viable option. Saving now and waiting for better credit deals later on apparently makes more financial sense.
Lenders offering 5% mortgages without Help to Buy back-up
Perhaps another worrying side-effect of the Help to Buy scheme is that it has prompted lenders to adopt more risky practices. 33 lenders in the UK are now offering 5% mortgages. Most of these aren’t in conjunction with the government scheme. This has prompted warnings from building surveyors that demand is greatly outstripping the supply of homes for sale.
The number of lenders offering high-risk mortgages has hit the highest number since 2006, and represents and 18% increase on the levels of the previous year.
So what’s the verdict?
HSBC and Barclays are planning to offer 95% mortgages in the future. So far, figures suggest that the scheme has indeed helped a number of people to get on the property ladder. However, as always there are certain quarters that fear that it will create a housing bubble. While for the moment the results of the Help to Buy scheme look promising, we’ll have to wait on the true impact – whether positive or negative – may not be felt for some time.
Allcott Associates are Chartered Building Surveyors, offering property evaluation services to all types of buyer for any property type. For more information contact Allcott Associates today.