When first released at the back end of 2013, the initial phase of the governments Help to Buy scheme for newly built property was met with a mix of praise and scepticism in equal measure. While many experts within the mortgage market, alongside struggling would-be first time buyers, saw the step as the chance to give a leg-up to buyers looking to take the first step onto the housing ladder, the noise from other quarters pointed to the risk of inflated house prices as a long term effect of the scheme.
The government have been quick to espouse the efficacy of their pilot, so much so that David Cameron was often heard during the run-up to the general election claiming that the plan had aided the stimulus of the UK housing market and helped to bolster the ailing economy. Confidence in the scheme was so high that the government also introduced a second phase as a mortgage guarantee loan for older properties.
An argument that the scheme has perhaps not been as effective as the government would choose to portray has been put forwards by a property economist for Capital Economics, Matthew Pointon. He has suggested that the scheme has, as many economists and market experts predicted, gradually pushed the average property price out of reach for many first time buyers.
Recent figures covering the use of both schemes support and refute the claims to some degree. 47,018 home buyers used the equity loan variant of the scheme to purchase a property since the launch. Looking closer into the data, 4,628 buyers completed on a purchase during the first quarter of 2015, demonstrating a considerable drop on the same period in 2014 when 5,581 buyers completed on a purchase with assistance from the government.
At the point the equity loan scheme was introduced, many market commentators noted that buyers in London were not necessarily going to be the beneficiaries of the plan. According to data collated from the Land Registry, the expense of buying in parts of the capital has added credence to this belief. Out of 5,200 sales made in the past two years in Kensington and Chelsea, just two homes took funds via the scheme. Equally low were the eight home buyers out of 5,609 buying in Hammersmith and Fulham, and the 10 of 6,899 buying in Westminster.
In comparison, the use of the mortgage guarantee scheme has risen, with 6,847 buyers taking up a mortgage on this basis across the UK, compared to 6,316 during the corresponding period in 2014.
Pointon suggests that the scheme has aided a small portion of UK home buyers, but on the down side, has also helped to increase property values to newly unattainable heights. He said: “The Help-to-buy scheme was able to temporarily boost the availability of low deposit mortgages, helping a lucky few first-time buyers. But that improvement is proving to be temporary, as the resulting boost to house prices acts to lock other would-be buyers out of the market.”
He furthered the argument that the positive effect of the scheme was declining, noting that the government and the Bank of England have not been in-step with one another when introducing policy to assist the market: “Two developments help explain why Help-to-buy only had a fleeting impact. First, government efforts to boost lending to riskier households has run up against efforts by the Bank of England to bolster financial stability by toughening up mortgage regulations.
“Second, by giving a boost to housing demand, and in particular to demand from first-time buyers, house prices have gone up – as we and many others warned they would. The weight of new mortgage regulation, coupled with the rise in house prices it has itself engendered, means that subsequent first-time buyers will get less and less help from Help-to-buy.”
Article By: Simon Butler, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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