Details of the end of the Help to Buy: Mortgage Guarantee scheme

Posted 5 October 2016 by Nick Parkhouse

We look at the reaction to the Chancellor's confirmation that the Help to Buy: Mortgage Guarantee scheme will close at the end of 2016...

As we reported last week, after helping 86,000 people buy their new home, the government has confirmed that it will be ending the Help to Buy mortgage guarantee scheme at the end of 2016.

The scheme, designed to help buyers afford a home with a small deposit, will be withdrawn at the end of this year after Chancellor of the Exchequer Philip Hammond said that it has achieved its intended purpose.

The Help to Buy scheme was one of former Chancellor George Osborne's flagship policies. The mortgage guarantee scheme, launched in 2014, encouraged lenders to offer more low-deposit mortgages, with the government offering a guarantee on the 'risky' part of the lending to the lender. It enabled buyers to purchase a home with a 5% deposit, with the government guaranteeing the next 15% of a property's purchase price.

Now, the Chancellor has confirmed that the scheme will end at the end of 2016. Hammond has told Bank of England Governor Mark Carney in a letter that the scheme was “introduced with a specific purpose that has now been successfully achieved” and that the scheme will cease.

The first element of the scheme - aimed at new-build homes and which gives a five-year interest free equity loan to buyers of up to 20% of a property's purchase price, if they can raise a 5% deposit - will continue until 2020.

The letter to Carney revealed that 86,000 people have used the Help to Buy mortgage guarantee scheme with an average property price of £157,000. Government figures show that both parts of Help to Buy have helped 185,000 people buy a home, 150,000 of whom are first-time buyers. 

Since the launch of Help to Buy, more and more lenders have started to offer 90% and 95% mortgages. In many cases these offered rates which undercut deals available through Help to Buy and this has prompted the decision to close the scheme.

Paul Smee, director general of the Council of Mortgage Lenders, says: "Help to Buy continues to give a welcome leg-up to many creditworthy buyers who may not otherwise have been able to get a foothold on the property ladder. The scheme has helped buyers right across the country, including a high proportion of younger borrowers and first-time buyers. Mortgages for those with small deposits are now becoming more common outside the scheme and Help to Buy has been a significant help for buyers when they were less readily available."

Some experts have welcomed the end of Help to Buy, saying that it boosted house prices without taking into account the real problem: an insufficient supply of homes.

Sam Dumitriu, head of projects at the Adam Smith Institute, remarks: "Philip Hammond is right to dump George Osborne's misguided mortgage guarantee scheme. The Adam Smith Institute has consistently called for the scheme to scrapped arguing that increasing liquidity in the housing market through government intervention will do little to solve the UK's long-run housing supply shortage.

"Britain's housing crisis is the result of supply being unable to meet rising demand. Help to Buy only served to make this problem worse, pushing up prices through cheap credit, while doing nothing to address the underlying housing shortage."

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