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Getting to grips with Help to Buy

By Denise Allen - 02 October 2015



What is Help to Buy?

Help to Buy is a government initiative, launched by the Conservative Party in April 2013. It aims to help people get on (or climb up) the property ladder. It allows homebuyers to secure a brand new home under the value of £600,000 with just a five per cent deposit.

The first part of Help To Buy involves an equity loan. As long as they have a five per cent deposit, the Government lends the buyer 20 per cent of the value of the property in the form of an interest free equity loan for five years, meaning that buyers can then gain access to some of the best mortgage rates currently available with just a 75 per cent mortgage.

Who is eligible?

Help to Buy equity loans are available to all homebuyers, not just first-timers, as long as the value of the property does not exceed £600,000. However, the vast majority of applications are from first time buyers.

At the moment, it is planned that the scheme will be in operation until 2020.

What is scheme 2 of Help to Buy?

In October 2013, the government brought forward phase 2 of the scheme, which had been due to start in early 2014. This was in response to the increasing cost of living in the UK. Phase 2 is a mortgage guarantee which meant that first time buyers can purchase a new build or an existing property, as long as it’s worth up to £600,000 and they have a five per cent deposit. Lenders can then pay a fee to the government which will in turn underwrite the bank’s mortgage for up to seven years, reducing the risk to the bank.

Scheme 2 is currently due to end in 2016.

What is a Help to Buy ISA?

Help to Buy ISAs will be introduced from December 1, 2015.

This will allow first time buyers to save up to £200 a month towards their first home and the government will also boost their savings by 25 per cent, or £50 for every £200, up to a maximum of a £3,000 bonus. Six major lenders have already signed up to this scheme including Barclays, Lloyds and Nationwide.

Why was Help to Buy introduced?

Help to Buy was brought in by the Government in response to soaring property prices, which saw the vast majority of first time buyers priced out of the market. Younger people were simply unable to come up with the deposits required by many mortgage companies and banks.

Has it been successful?

Yes, the latest figures from the government show that nearly 120,000 people have bought their own home since the scheme was introduced.

More than 90,000 of those were first time buyers, which amounts to 80 per cent of the total applications.

The government says this shows Help to Buy is targeting those who need it most.

The average house price was £186,000 – significantly less than the national average.

What is the situation in Essex?

More house buyers in Essex have taken up the Help to Buy scheme than in any of part of the East of England.

There were 1,591 Help to Buy sales registered in Essex in the first two years of the scheme, which is higher than in any other county.

First-time buyers in Essex have been keen to take advantage of the scheme, fuelled by the availability of new homes in the county.

What do the experts say?

“HELP to Buy has proved to be very, very successful,” said Terry Holmes, director at Beresfords. “The main thing is that the government has recognised the challenges that first-time buyers face with affordability and has done something to address that.

“The fact that Help To Buy has two distinct strings to its bow means that it has opened up the possibility of owning your own home.”

Many property experts have pointed out that, while Help to Buy has been a success, it does nothing to address the overarching problem of a lack of available properties.

“The previous Government projected that households would grow at the rate of 232,000 a year,” Terry said. “We are building around half that number of homes. In fact, the last time we built the sort of volumes the Government says we need was back in the late 1970s, so it’s clear we need a radical rethink as to how we address that issue especially when it comes to affordable homes.”

To back up this point, in recent months, Beresfords has seen a huge demand for the properties that are coming onto the market, with six applicants battling it out for every residential property, and 11 applicants for every letting.

Source: Essex Chronicle