The Governor of the Bank of England, Mark Carney, has expressed the most serious concerns so far about the Government’s Help to Buy Scheme. In a candid interview with Sky News this weekend, Carney admitted that the Help to Buy scheme has contributed to the spiralling house prices in the UK, particularly in South East England. Many will see the remarks as a pre-cursor to the flagship scheme being drastically scaled back or withdrawn altogether.
The two phases of the Help to Buy initiative have helped thousands of contractors get onto the property ladder with a 5% deposit, allowing them to buy earlier than would have been possible before the scheme. The first stage allows the purchase of a new build home, with a 5% deposit and a further 20% via an equity loan, which means contractors have been able to take out a mortgage that equates to 75% of the property value from outset. Phase 2 of the scheme allows a contractor to buy any property with a 5% deposit, with the Bank of England protecting the lender in the event of a mortgage default to allow them to offer a 95% mortgage.
As the interview with Mr Carney unfolded it didn’t take long for the focus to shift to how mortgages are assessed by lenders, stating that lending policy should focus on potential borrowers being able to ‘get mortgages if they can afford them but they won’t if they can’t’.
Deputy Prime Minister Nick Clegg joined his voice in supporting the comments from the Governor in a BBC interview yesterday. Mr Clegg expressed that further measures to scale back Government initiatives were appropriate. Speaking of Mr Carney’s remarks, he added the following.
“I think if he says that we need to pare back on some of the government schemes like Help to Buy, then I think we should do so.”
Despite the potential withdrawal of schemes like Help to Buy, it is worth noting that contractors do still have options to buy their homes with a 5% deposit with certain banks that do not rely on Government backing. Simon Butler, Senior Mortgage Consultant at specialist broker Contractor Mortgages Made Easy, made the following comments regarding mortgage options for contractors with minimal deposits.
“The Help to Buy scheme has helped many contractors in achieving a move, where previously they were hampered by the requirement for deposit of 10-15%. The comments from the Prime Minister and his Deputy in recent days will cause concern for some that the option may be about to disappear.”
“Looking at it logically, the main issue we have in the UK is that housebuilders cannot build new houses fast enough to meet Government targets. Help to Buy Phase 1 has a direct impact on how quickly the new properties are sold, so it would be unwise to scale this side of the scheme back. It is Phase 2 that could be withdrawn at short notice, and unfortunately, this is the one that most contractors will look to use.”
“It is also worth noting that there are lenders out there who offer 5% deposit mortgages without relying on Government backing. For example, contractor-friendly lender Clydesdale Bank have mortgage options where they can lend on 95% of a purchase price up to circa £526,500. Whilst they do not rely on the Government to offer these deposit options, it would be interesting to see if these deals were still on offer if their competitors withdrew the Government-backed 95% deals.”
“The message that will be emerging for contractors from this weekend is that a useful option to get onto the housing ladder quickly may be about to end. As a result of this, many will be watching the over-heating housing market with interest, hoping that they do not get priced out of the market before they can save sufficient deposit.”
Article By:Taj Kang, Business Development Director at Contractor Mortgages Made Easy
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