Will it be an early ‘bye’ for Help to Buy?

Help to Buy has hit the headlines once again but now there are doubts as to whether the schemes will stay as long as expected or exit early.
Rebekah Commane looks at the reasons why the government’s popular programme may leave many wanting

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So once again the government’s Help to Buy scheme is in the spotlight, but this time it’s not for the right reasons.

Unless you’ve been living under a rock for the past year you must have heard of the scheme, especially if you are in the process of securing a mortgage or looking to remortgage.

In short, Help to Buy was introduced by the government in two phases, with the intent of boosting the number of new-build homes and to incentivise lenders to provide high loan-to-value (LTV) mortgages for those who are struggling to raise a substantial deposit, as is needed for most other home loans on the market.

The first phase has been around for a year now and offers equity loans to those purchasing new build homes. It has been credited by some for contributing to an increase in supply of housing in England, although it hasn’t adequately impacted on the drought on homes for purchase as to make a huge impact.

The second phase, known as Help to Buy 2, involves lenders offering 95 per cent mortgages to those with a 5 per cent deposit. It’s been called ‘mortgage guarantee’, although the guarantee offers a security blanket to lenders, not to borrowers, which is a fact that consumers need to be aware of before signing up.

There has been little doubt among those with the surveys and the statistics that the second element of the scheme has increased the availability of 95 per cent mortgages and housing transactions, with most of the big lenders and many building societies signing up.

More than three quarters of brokers (78 per cent) and lenders (77 per cent) see this part of the government scheme as a major driver in improving conditions for borrowers with 5 per cent deposits (source: IMLA).

It was introduced to great fanfare, ahead of schedule in October, and sparked excitement among the many ‘wannabe’ homeowners who could now secure a mortgage without much savings behind them.

However, the one down-side to the introduction of Help to Buy, particularly the mortgage guarantee element, is that it has no doubt contributed, at least in some level, to increasing house-prices, as more and more people have the means to compete for each house that comes on the market, while supply is not rising sufficiently to meet this.

New research from the Intermediary Mortgage Lenders Association (IMLA) cast a critical and objective eye over the scheme by surveying its members to determine predictions for the future of the scheme.

Over-inflated house prices remain the number one threat to the success of Help to Buy according to brokers and lenders, according to IMLA’s recent report, entitled, What is the new ‘normal’? It shows the rise in the number of brokers and lenders who predict that exaggerated house prices will see an early demise of the mortgage guarantee scheme, compared to July 2013; an increase of 57 per cent of brokers and 69 per cent of lenders.

Another factor that could see an early end to Help to Buy 2 is ‘unattractive pricing’, according to IMLA’s report. Now that more lenders outside of the scheme have begun to offer 95 per cent deal, some with less hefty fees than those within the programme, consumers are starting to realise that they may be better off veering away from the scheme.
Unattractive mortgage product pricing is the concern which has grown the most since last summer, the report found, with 51 per cent of brokers citing this as a threat to the future of Help to Buy, compared with 36 per cent in July 2013.
At the end of the day, both the equity loan and mortgage guarantee elements of Help to Buy have undoubtedly contributed to an upturn in the housing market and access to mortgage products. For example, lenders outside the scheme would not have been prompted to offer such appealing deals had they not been driven by the competition of those within the scheme.

Only time will tell what the future holds for Help to Buy and how long it will remain on the market but if you are looking to get involved you are better off getting the ball rolling sooner, rather than later.

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