Help to buy; The low down

Martin Woodhead of Mortgage Advice Bureau, Heywoods comments on the Help to Buy scheme. It’s at the forefront of the minds of people who are looking to get onto the property ladder – but do you ...

Martin Woodhead of Mortgage Advice Bureau, Heywoods comments on the Help to Buy scheme. It's at the forefront of the minds of people who are looking to get onto the property ladder – but do you really know what it means?

The scheme, announced by Chancellor George Osborne has two key components, the first of which launched to the market at the start of April. This part, the equity loan scheme, allows borrowers with a deposit of as little as 5% to get onto the housing ladder. Each borrower's contribution is supplemented with a loan from government worth 20% of the property's value. The remaining 75% is obtained from a traditional mortgage lender.

This is far more wide-ranging than previous government schemes and applies to all new build properties in England worth up to £600,000. The government loan is interest free for the first five years and then charged at a rate of 1.75% each subsequent year. The scheme has proved to be an early success with more than 12,500 properties reserved using the scheme since April. The government has set aside £3.5bn to fund the scheme and it is expected to run until March 2016.

Andy Frankish, new homes director at Mortgage Advice Bureau, says that Help to Buy has been a ‘game changer' for the mortgage market and has boosted house building.

“The first part of Help to Buy has been a resounding success,” he says. “It's been a clear game changer for the new homes industry, and that's not a term I've ever used to describe any other mortgage product or scheme.

“Achieving 12,500 reservations in five months means we are over the original target set by the government, demonstrating that consumers have every confidence in this initiative and are stimulating the creation of new-build properties.”

The second half of Help to Buy has proven more controversial, despite the fact it is still yet to launch. The mortgage guarantee is set to launch in January and will offer all homeowners access to government support when buying any house, not just a new build property. This scheme sees borrowers contribute a deposit of between 5% and 20%, obtaining the remainder from a traditional lender. The government will insure part of each mortgage to protect lenders from losses if the mortgage defaults.

It hopes this will stimulate lending at higher loan-to-value ratios and increase the availability of mortgages to those with smaller deposits. This scheme is set to launch at the start of January and can run from 3 years, subject to continued Bank of England approval.

Other schemes such as shared ownership are still available to would-be homeowners and Frankish adds that consumers are already taking advantage of the range of products on offer.

“Other initiatives such as shared ownership schemes are still an essential product for lower income earners, but Help to Buy is an important product for those who want to own their house outright and consumer interest in this initiative is unlikely to dissipate any time soon.”

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