New data suggests that the recently launched Help to Buy London scheme is failing to help first-time buyers in the capital get on the property ladder.
According to the latest Help to Buy equity loan statistics from the Treasury, only 256 households in London have used the Help to Buy London scheme since its inception in February. The average purchase price of a property purchased was £492,296.
Charles Holland, head of residential investment at Marsh & Parsons, said: “This shows that while the scheme is helping some people take the first step on the property ladder, it is still a drop in the ocean of what is required to truly get young Londoners moving. Such initiatives are welcome, but until the fundamental issue of the housing supply shortage is fully addressed, nothing will truly change.”
Help to Buy London was launched on 1 February and gives aspiring homeowners who have been frozen out of the market in London the opportunity to get on the housing ladder. First-time buyers with a 5% deposit can borrow up to 40% of the value on a new home priced up to £600,000. They will need a mortgage of 55% to cover the rest.
For the rest of the country, under the equity loan segment homebuyers can borrow up to 20% on the value of a new-build property with a 5% deposit and a 75% mortgage to make up the rest.
The data shows that 81,014 households in the UK have taken out an equity loan between October 2013 and March 2016.
The figures also revealed that applicants earn on average £46,324 a year, fuelling fears that buying a home is now out of reach for many looking to get on the property ladder.
Most of the home purchases in the equity loan scheme were made by first-time buyers, accounting for 65,474 (81%) of total purchases.
Holland said: “After peaking in the final quarter of 2015 after further encouragement from the government, the number of Help to Buy completions tailed off in the first three months of this year.
“This brings the total number of properties purchased using the equity loan scheme above 80,000 which is a not insignificant amount, but it’s worth bearing in mind that fewer than 5,000 of these transactions have occurred in the capital. Given the continual draw of London as an employment and lifestyle hub, this is obviously problematic.”
Mortgage guarantee concerns
There were 5,096 mortgage guarantee completions in in the first quarter compared to 8,182 in the final three months of 2015. This is also down 25% from the same period last year when there were 6,829 completions.
Patrick Bamford, business development director for AmTrust International Mortgage and Special Risks said the fall in mortgage guarantee completions in the last year was “concerning”.
“The scheme is due to end this year and there are very real concerns that this will cause a sharp decline in high loan-to-value lending. We have already seen worrying signs that the growth in lending to those with smaller deposits triggered by the scheme is already on the wane.”
The Help to Buy mortgage guarantee scheme provides a government guarantee to lenders on mortgages where a borrower has a deposit of between 5% and 20% for existing properties as well as a new-build.
Since the launch of the Help to Buy: mortgage guarantee, 78,749 mortgages have been completed. Of these, nearly a third of households (30%) had combined incomes of more than £50,000, with eight out of 10 purchases by first-time buyers.
The figures will fuel concerns that first-time buyers who need a helping hand to get on the property ladder are being squeezed out by those who can already afford to buy.
Bamford said: “The uncertainty caused by the Brexit referendum result means banks will be reviewing their mortgage risk appetite. Combined with the end of the Help to Buy scheme, risks creating a perfect storm for lending to first-time buyers with small deposits, which could have a significant impact on the broader property market.
The government has introduced a number of new schemes in recent years to help those looking to buy a home, including Help to Buy and Right to Buy. In the Autumn Statement last year, Chancellor George Osborne unveiled plans to build 400,000 homes and announced a 3% rise in stamp duty as part of the government’s aim to curb the buy-to-let sector and free up property for first-time buyers.
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