Why we need to dispel confusion over Help to Buy scheme

ALMOST a third of those who intend to buy in the next 12 months are first-time buyers, the highest proportion Rightmove has recorded for over three years.

Yet one in three of them say they don’t understand phase two of the government’s Help to Buy scheme, and 42 per cent of all home-movers wrongly believe it is only for first-time buyers

More than one in five people are looking to buy as a direct result of Help to Buy and five per cent say they are going to sell because of it.

The Help to Buy mortgage guarantee scheme can help you purchase a newly-built home or an existing property with a deposit of as little as five per cent.

Miles Shipside, director and housing market analyst at Rightmove, says: ”Although it’s still too early to judge the impact of the scheme, we anticipate that more first-time buyers getting onto the bottom rung of the housing ladder could have knockon effects further up, helping more people to trade up and downsize. Many have postponed their move over the last few years as either limited equity or lack of confidence has left them unable or unwilling to. This scheme has the potential to offer hope and confidence to many of these homeowners enabling them to come to market and free up some much-needed supply.

“But there’s clearly a lot more that still needs to be done to make sure the maximum number of people who could benefit directly from the scheme or its knock-on effects, can do so. A significant proportion of people say they are waiting to see what happens – but if they better understood how the wider benefits of the scheme could help them trade up or downsize it might open up more supply and lead to a healthier and more sustainable housing market. To give first-time buyers more of a chance to get on the property ladder, and help give potential movers higher up the chain the confidence to move again, the confusion needs to be addressed.”

Rightmove has teamed up with the Money Advice Service and consumer champion Martin Lewis to offer answers to Help to Buy questions:

Q. Is it now easier for me to get a mortgage?

A. It may enable you to get a mortgage at a cheaper rate, however it’s very likely that if you only have a small deposit, there are still going to be some rather harsh credit scoring and affordability criteria. If you have a five per cent deposit, a good credit score and can prove you can make repayments, what is likely to happen is you will be able to get a mortgage at a more competitive rate. However, if you could push to a 10 per cent deposit rather than five per cent you will find rates come down significantly. If you can push to a 20 per cent deposit, rather than 10 per cent, then you would find rates coming down very significantly.

Q. Is it now easier for me to buy a property?

A. Individuals still need to prove they can afford mortgage payments and meet lending criteria. If these conditions can be met and you have at least a five per cent deposit saved, then yes, you may find it easier to obtain a mortgage from a lender participating in the Help to Buy: mortgage guarantee.

Q. Will my mortgage payments go up after the Help to Buy Guarantee ends?

A. No, the Help to Buy: mortgage guarantee will not impact on your future mortgage rates. You can ask if the lender offers fixed rates. Q. What are the risks? A. You are potentially buying a property with a very small deposit, which means you have a very big loan.

The biggest risk out there is that interest rates aren’t just low right now – they are nearly two per cent lower than the prior 200 year historic low. We are in an anomaly time and at some stage in the future, interest rates are going to bounce back.

The risk is “could I afford to repay the mortgage if interest rates increased”.