Cameron surprises everyone with boost for buyers
Help to Buy launches next week after a shock announcement by the Prime Minister. So what does it mean for buyers? Sharon Dale reports.
DAVID Cameron left critics dumbfounded when he revealed that the next phase of Help to Buy would be brought forward.
The scheme, which was set to start in January, had been lambasted amid fears that it could create another housing bubble, but the PM has ignored the naysayers.
It will now launch next week and is open to all, not just those buying for the first time. It can also be used on existing, secondhand properties as well as new builds up to a value of £600,000.
It aims to take the risk out of lending by guaranteeing up to 15 per cent of a mortgage. It is not a loan, just an insurance policy, but it will enable banks to lend confidently to those who only have a five per cent deposit. At the moment it is difficult to find a mortgage with favourable rates without at least a 10 per cent deposit .
Government-backed lenders Lloyds and RBS are already committed to the three-year scheme and more banks looks set to follow.
However, although they will be able to approve loans from next week, they will not be able to access the Government guarantees until January.
This means borrowers will not be able to complete a house purchase until January 2 at the earliest.
The audacious bid to get the property market moving was revealed on the eve of the Conservative Party Conference and, despite criticism from economists and analysts, it looks set to be a vote winner.
The day after the announcement, traffic to Rightmove’s Help to Buy section increased fourfold.
Miles Shipside, director at the property portal, says: “A lot of the talk to this point has been about the politics of the scheme and the implications of government intervention in the housing market but this is the clearest sign yet that, trying to make sense of all the debate, are lots of home movers for whom this scheme is genuinely exciting.”
But he warns of a potential lack of supply and is urging the Government to make it clear that it isn’t just for first-time buyers.
“The scheme is open to all buyers looking for a home and all properties up to £600,000. More than 90 per cent of properties listed for sale on Rightmove are under that price threshold.
“The signs are clear that the scheme will stimulate demand but, in a market already short on new listings, the onus must be on stimulating supply too. Perhaps the Government should emphasise that the scheme is open to existing homeowners looking to trade up too.”
One of the confusing factors is the existing Help to Buy equity loan scheme, which launched in April. It is aimed primarily at firsttime buyers with a maximum income of £60,000 and is available only on new builds.
The buyer agrees to an equity loan of up to 20 per cent, which is interest free for five years, to add to their own five per cent deposit. This leaves them with repayments on a 75 per cent mortgage loan.
Franz Muehlthaler, a mortgage adviser for Holroyd Miller Properties, says: “I do not understand the rush to put the new scheme out now rather than let it be properly understood by all concerned.
“Some lenders were struggling to implement changes for the original January 2014 launch, let alone to get to grips with systems and applications with effect from now. It could also lead to too many applications being made over the coming weeks, only for them to get rejected as lenders will not have not had chance to implement underwriting strategies properly. This will mean rejections now for people who may be approved in a couple of months’ time.”
Franz adds: “I worry that a lot of people will see this as a guarantee of gaining a mortgage, believing in some way that the Government will guaranteeing a portion of the borrowing no matter what. People must understand it isn’t a get a property quick and easy scheme. The usual criteria applies and that means you have to show you can make the repayments and that your credit history is good.”
Kevin Hollinrake, MD of York-based estate agency chain Hunters, feels that the scheme’s primary aim to “get the market moving” may have been taken over by events. The signs are that property prices and activity are starting to recover from a five year slump. He believes prices in Yorkshire have risen by five per cent already this year.
“When this scheme was originally proposed in March, the market was in a completely different place. Since then our sales volumes have increased by 35 per cent and prices are increasing. Every sale we agreed in one of our offices last week went to best offers and we are concerned that more demand without a similar increase in supply will overheat the market.
“The Government has apparently handed the Bank of England the role of supervising the new scheme. including the ability to limit it if things get too frothy which is reassuring.
“We think the scheme is a good one. We just need to make sure that lending doesn’t get out of control again.”