Help to Buy Scheme

The Telegraph has just published figures relating to the Help to Buy Scheme. The numbers show that over 7,000 houses have been bought under the government guarantee scheme. Against a background of rising house prices, critics of the scheme claim it is contributing to rising house prices, and could be counterproductive.

Under the present Help to Buy Scheme the government will help people get a mortgage. Buyers have to pay a 5% deposit. The treasury will lend 15% of the value of the new build home. They retain the 15% share in the property. The loan scheme applies to homes up to the value of £600,000.

In fairness to the government scheme, 80% of the people who have received money under the system have been first-time buyers rather than those already on the property ladder.

The coverage of the scheme has been patchy in terms of geography. 13% of the completions were in Scotland, 5% in London, 14% in North West, 8% in the West Midlands, 9% in the East Midlands, 4% in the North East, 9% in the East, 8% in the South West and 14% in the South East. For the full list see http://www.bbc.co.uk/news/business-27608313

The housing shortage is most critical in London especially for lower-income families, and yet only 5% of homes were bought in London. It is interesting to note that the £600,000 limit seems prohibitively small for the capital, and also too much for certain other parts of the country.

The idea was to help lower income families buy homes- those who otherwise would not be able to afford a home – yet the high threshold encourages middle income families to get favourable terms.

Others have argued that the government money is being country-productive as it is driving up house prices. Martin Beck, senior adviser to the EY ITEM club, claims the scheme has ‘little direct role’ in the monthly raises in house values.

The fear of a housing bubble has put pressure on the government to stop the subsidies for mortgages. There are vocal calls for sanity to prevail in lending. The traditional formula of 3 times an annual salary has a strong appeal to common sense. It would appear that house prices are far more than most Brits can afford.

Finally lenders are responding by increasing the scrutiny of their due diligence – going down to minutiae of spending on leisure activities, phone bills etc. It is expected that people should live frugally if they are to be trusted with a debt of over half a million pounds.