It’s hard to know what to make of Help to Buy. One year on, opinions on the scheme are divided, with its supporters claiming it’s giving first time buyers a helpful leg up whilst critics claiming its leading us towards another housing bubble.
On the face of it, Help to Buy seems like a good idea. The scheme aims to give first time buyers and movers who can’t afford to stump large cash deposits access to the housing market.
By offering an interest free equity loan of up to 20% of the property’s value, the buyer then contributes just 5% of the value as a deposit, and would need a mortgage of up to 75%.
In theory, this allows first time buyers a fair chance of getting their foot in the door of the property market. The value of the house hasn’t changed, but the equity loan means a more affordable deposit and a smaller mortgage, meaning they are more likely to be approved.
The statistics suggest the scheme is working, with news that mortgage lending has increased. According to figures released with the recent budget, of the 17,000 homes bought under Help to Buy, 80% were bought by first time buyers.
The problem, according to detractors is that now the market has been given a boost, Help to Buy is actually pushing house prices beyond the reach of those the scheme was created to help.
The concerns are founded on the fact that as Help to Buy is gives more people access to the market, there are not enough properties being built to cope with demand. In 2013 there were 109,370 properties completed, compared to the 250,000 experts said were needed.
This increased demand has pushed prices up; over the last year house prices have increased by 9.2% nationwide, with a dramatic increase of 18.2% in London where demand is highest. Here in the North West and West Midlands, prices have risen by 6.9% and 6.8% respectively, whilst the city of Manchester has seen a rise similar to that in London.
This is adding to fears of a possible future housing bubble. If demand continues increasing but supply remains low, prices will grow and first time buyers will once again be left unable to afford deposits, even with help from the scheme.
According to first time buyer group PricedOut, over 245,000 people have been priced out of the market by the scheme so far. This is based on the assumption that a house is affordable if it is no more than 4 times a household’s income.
Not everyone blames Help to Buy for the increase in prices. Property specialists Hometrack claim that increased mortgage lending and low interest rates have contributed to a surge in demand, and as the economy has started to recover this has given a boost buyer confidence and people’s desire to own homes.
This is backed up by property firm Countrywide, who have researched how buyers are using Help to Buy. They claim that whilst the scheme has helped a great deal of first time buyers, it is still only contributing to a proportion of sales, 10% in the North West and only 2% in London where there has been the greatest price increase.
According to the Government, Help to Buy is actually encouraging house building, as the surge in demand and boost to housing market has given builders confidence that properties will sell.
For the short term at least, it would appear that Help to Buy has given first time buyers the advantage they needed and in turn given the property market a welcome boost. Any scheme that provides more access for people to get onto the property ladder will be well-met by buyers. What we can hope for now is that enough affordable properties will be built to meet demand and to make sure that first time buyers can continue to make the most of the scheme without being priced out of the market. The Bank of England have said they will be keeping a close eye on the market and are poised to act if they see signals of a housing bubble.