The government has announced that the Help to Buy mortgage guarantee scheme is set to end in December after three years.
Chancellor Phillip Hammond said in a letter to Bank of England governor Mark Carney that the scheme would not go beyond the end of 2016 as planned.
Hammond said that as over 30 lenders were now offering 5% mortgages to homebuyers the specific purpose of the scheme had now been “successfully achieved”.
There were fears when the scheme was originally introduced that it would fail to make housing more affordable and create a housing bubble.
The Help to Buy mortgage guarantee scheme was launched in 2013 to help first-time buyers get on the housing ladder by encouraging lenders to offer 5% loans to borrowers through government support.
It 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.
Under the scheme, the government acts as a guarantor on mortgage loans for 15% of the value of the property. The idea of this is that it will give banks and building societies peace of mind and therefore encourage them to offer larger loan-to-value products of between 80% and 95%.
The Bank of England’s Financial Policy Committee said earlier this month the scheme was no longer needed.
It said that the scheme had not driven up house price growth or posed a risk to the financial stability of the mortgage market.
Simon McCulloch, director at comparethemarket.com, said: “The Chancellor’s confirmation that the mortgage guarantee scheme is being scrapped makes the leap onto the first rung of the ladder that much higher for first time buyers. Our research suggests that over 5.5 million British people think that they will never be able to own a home and, whilst the Help-to-Buy scheme was not without its problems, its removal could push this figure even higher.”
Richard Sexton, director at e.surv, said: “To date, the government has demonstrated enthusiasm in its appetite to support the housing market. This U-turn by the Chancellor begs the question of whether a change of emphasis is afoot. A fluid housing market is key to the overall health of the economy, and supporting first time buyers onto the property ladder is critical to achieving that.
“The early success of the scheme led many high street lenders to include higher LTV products in their offerings. With this in mind, the withdrawal of Help to Buy may not have a dramatic an impact on the market. However, lenders who made plans to include the scheme as part of their product range may now have to revise their strategies.”
Patrick Bamford, business development director for AmTrust International, Mortgage and Special Risks, said the closure of the scheme was a watershed moment in the post-2008 recovery of the first-time buyer market.
He said: “It was neither desirable nor sustainable for high loan-to-value (LTV) lending to be carried permanently on government shoulders, but attention must now focus on ensuring the right commitments and support structures are in place, so that help for aspiring homebuyers with modest deposits remains on the table without building up extra risk in the financial system.”
Hammond confirmed the Help to Buy ISA and the Help to Buy equity loan scheme would continue.
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