With the price of houses constantly rising, consumers can find themselves facing huge deposits and mortgages that will last what seems like forever. Consumers are generally figuring out that anything less than a 10% deposit simply won’t do. George Osborne invented the Help to Buy scheme in Autumn 2013 and was described by him as a ‘landmark’ scheme that would get thousands of people on the housing ladder. Help to Buy is a government scheme which is designed to help those who are struggling to save a deposit for their first move or move up the property ladder as they have limited equity.
There were, or as of before December 31, 2016, two main elements of the Help to Buy scheme:
This part of the scheme was launched on April 1, 2013 and is available until 2020. It is open to first-time buyers and home movers; however, it is only restricted to those who are buying homes that have been newly built. If you have a 5% deposit, you can receive up to 20% government equity loan which means you will only require a 75% mortgage. A smaller mortgage means lower monthly payments which results in your home being more affordable. There are no salary cap restrictions on the scheme. The 20% equity loan is provided by the government and is interest free for 5 years. In the sixth year, you will be charged 1.75% and after that, the fee rises by inflation based on the Retail Prices Index (which is a measure of inflation measured by the ONS – the Office of National Statistics). You can pay back the equity loan when you sell your home or at the end of your mortgage period. This loan has to be paid back within 25 years or when the property is sold. If the property value has increased by the time you pay back the loan, the amount to be paid back will be proportionately higher, so the Government shares any profit.
Under the programme, borrowers were able to get a mortgage with just a 5% deposit. If those borrowers were unable to make payments, the government promised to compensate the lender.
This guarantee was available for new and old properties across the UK. However, Chancellor Philip Hammond announced the ending of the Help to Buy mortgage guarantee scheme in a letter to the governor of the Bank of England, Mark Carney, in September. He stated that the scheme was created ‘with a specific purpose’ which has ‘now been successfully achieved’.
As Mr Hammond announced the closure, the Treasury published figures revealing that more than 86,000 households had been supported by the scheme. Across all the Government’s Help to Buy schemes, a total of 185,000 were bought, 150,000 of that being first-time buyers. Although the Government says it is no longer needed as confidence has returned to the market, with more private lenders now offering similar high loan-to-value loans.
This scheme was extremely useful to first time buyers with low confidence due to the 2008 financial crisis. The Bank of England declared in September that the scheme is no longer necessary due to this. Some say that scheme only made the problem worse as it increased prices by offering cheap credit and not addressing the problem of the housing crisis. Sam Dumitriu (the head of projects at the Adam Smith Institute) said Mr Hammond made the right decision.