Is Help to Buy really that helpful?

The Chancellor’s Help to Buy mortgage scheme has been a controversial offering by the government, to say the least. The scheme was launched to help boost home ownership, by helping buyers to come up with a deposit to get onto the housing ladder. The scheme is available for properties up to the value of £600,000, and it enables the buyer to obtain a mortgage with a deposit of as little as 5% of the property value. A loan is given for the rest of the property value – the government (or taxpayer) guarantees up to 15% of the loan, meaning that the mortgage lender only needs to risk the other 80% of the loan amount.

The first tranche of the Help to Buy scheme was launched in April this year, and was available for new build property purchases only. It’s estimated that it has subsidised approximately £1.3bn worth of new build property purchases since its launch – according to some property experts, this is the equivalent of more than a third of new build sales over this period. The second tranche is worth £12bn and launches in January 2014, when the scheme will be available on all properties.

One of the other reasons for the scheme was to encourage house builders to build more homes and reduce their land banks, by helping to guarantee demand from buyers. At the moment, many house builders claim they’re concerned that demand or affordability isn’t high enough to increase their production of new homes. However, the scheme is accused by sceptics of being a pre-election sweetener, and there are serious concerns that it may fuel a housing bubble by artificially raising house prices and making it easier to get a large mortgage. Because the scheme is available to existing homeowners as well as first time buyers with no specific age restrictions, there are concerns that the help won’t even be directed at those buyers it was designed to help.

The problem is, prices are already inflated, and affordability simply isn’t there as house prices have risen so much versus wages. This is why so many people are struggling to get onto the housing ladder, and for the government to give people a helping hand to buy into inflated prices is an extremely risky strategy in my opinion. Unfortunately, the wheels are in motion and only time will tell if industry insider and economist concerns are accurate.

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