Help to buy blog for week commencing 14.10.13
Following the launch this week of the second stage of the Government’s Help to Buy scheme, expert opinion is divided about the impact it will have on the housing market.
Whilst critics of the scheme cite the easy availability of debt, which they say will inflate house prices leading to another bubble, supporters welcome the fact that from this week practically anyone can put down a 5% deposit on a home worth up to £600,000, and get a Government-backed mortgage come January.
Under the scheme, those who can afford monthly mortgage payments but who cannot save enough for a 20% deposit will be able to apply for a mortgage with a deposit of just 5%. The scheme was first launched last year for new-build homes, but it has now been extended to all properties under £600,000, and now includes opportunities for those who are already on the property ladder.
Under the scheme, buyers across the UK only need to provide a small deposit, with the Government offering a guarantee of 15% on the loan to the lender – for a fee – to encourage the bank or building society to offer the loan.
That fee charged to the lender is expected to be up to 0.9% of the original loan level. This is a one- off fee dealt with entirely by the lender, which guarantees 15% of the mortgage for seven years.
Borrowers will still have to undergo affordability checks, as they would with any other mortgage.
Morag Polmear, head of the conveyancing department at Beecham Peacock LLP, said: “I understand the concerns of those who say that the scheme may lead to an increase in house prices. However, I think those concerns are more relevant to London and the South East, where house prices are already starting to rise.
“Here in the North East I think the scheme will have a largely positive impact, as it will enable many people who cannot afford a hefty deposit to get onto the housing ladder.
“It is important to note, however, that if people can afford to pay a larger deposit then they should do so. Obviously the more money you have to borrow from the bank, the more interest you are paying on the loan. In addition to that, the interest rates being offered by banks under the Help to Buy scheme are generally significantly higher than those for borrowers who can put down a deposit of 20% or more.
“I would say to people that, if you are earning enough to afford mortgage payments but simply cannot get a 10% or 20% deposit together, then Help to Buy may very well be the answer you are looking for. But if you can afford to put down a larger deposit, you would be well advised to do so.”