Help to Buy – clarifying the confusion over the ‘closure’ of the scheme
Posted 30 September 2016 by Keith Osborne
With all the national headlines referring to the ‘closure of the Help to Buy scheme’, UK house-hunters could be forgiven for feeling that the rug has been pulled out from under them suddenly by Theresa May’s regime.
However, reports of its demise are greatly exaggerated. What has really happened is that just one part of the Help to Buy scheme – the mortgage guarantee option, always planned to end on 31 December 2016 – will not be extended beyond this original termination date.
Help to Buy shared equity, and the Help to Buy ISA introduced last year by George Osborne, will still continue. The shared equity scheme is currently aimed to run until 2020, while with the ISA product, it is available to open until December 2019 and the funds can be used on buying a new home up to 2030.
The mortgage guarantee part of Help to Buy – sometimes referred to as ‘Help to Buy 2’, came into operation on 1 January 2014, some nine months after the shared equity part of the scheme. It was launched to encourage mortgage lenders to offer more products that required only a 5% deposit, buy guaranteeing the lenders that a large proportion of the loan would be covered if buyers did not keep up their payments on these higher-risk loans. It was also available on all properties, not just new build homes (unlike the shared equity scheme, which is only available on new properties).
At the time, there were very few home loans that offered buyers the chance to put down such a small deposit. Many of the mortgages introduced under the Help to Buy mortgage guarantee were themselves not particularly competitive, especially compared to loans based on 10% or 20% deposits, and they were not often at any better rate than the few other 95% loan-to-value mortgages available outside the scheme at the time.
In the two-and-a-half years since the introduction of the mortgage guarantee, while over 80,000 homeowners have used mortgages through it, the number of 95% loan-to-value mortgage options has mushroomed, from a little over 50 at the start of 2014 to more than 270 today.
While it is unclear as to how many such loans will continue to be available, there is no doubt that buyers, particularly those putting their first foot on the property ladder, are in a better position than three years ago, before the mortgage guarantee scheme was brought in.
“The scheme may be dead, but so long as high street banks are offering 95% mortgages, its effects are still with us,” says Julia Rampen in the New Statesman today. Though a critic of the scheme at the time, she now sees its positive effects and the sense of withdrawing it in light of the changes to the market since, saying: “The government always intended Help to Buy mortgage guarantee to act as a stimulus, not a long-term solution.”
So don’t panic – the Help to Buy shared equity scheme and ISA are still with us for a considerable time, continuing to assist cash-strapped buyers into the market and encouraging the nation’s housebuilders to bring more new build homes to market that simply doesn’t have as many as it needs.