In April 2013, the Government launched the first phase of the Help To Buy scheme (HTB). This gave homebuyers in England equity loans of up to 20% of the price of a “NEW PROPERTY” worth up to £600,000. Homebuyers needed to find at least 5% of the property price as a deposit, with a 75% mortgage to cover the balance. Clearly this first phase only benefitted those homebuyers purchasing brand new homes.
However, on 8th October 2013, the Government launched the second phase of the Help To Buy scheme, some three months earlier than scheduled. From that date borrowers could apply for mortgages and participating lenders could approve mortgages, however, borrowers cannot complete on their house purchase until January 2014 when the Government guarantee is issued.
The difference between the first phase and the second phase is that the second phase covers “second hand” as well as new properties. The Government will underwrite and guarantee the next 15% of the mortgage reducing the banks’ potential losses so they can offer cheaper mortgages to higher risk customers who are currently locked out of the market. The Treasury will charge banks and other lenders up to 0.9% for insuring losses on mortgages under the scheme, which could in theory make a profit, but Whitehall maintains the scheme will be “revenue neutral”.
The Government has given £12 billion of guarantees on up to £130 billion of mortgages, and will remain open for three years, until 2017. How soon the £12 billion pot will run out depends on how many lenders back the scheme and how popular it is. The state supported Royal Bank of Scotland and Lloyds Banking Group have already signed up as have the Halifax and NatWest.
However, some of the UK’s biggest lenders, HSBC, Santander, Nationwide and Barclays have yet to decide whether they wish to take part. If all the major banks and building societies took part, the £12 billion funding for the guarantees will be spread more thinly, and it has been suggested that it is quite probable the Government’s funding could be used up within the first 12 months.
The Business Secretary Vince Cable as well as critics both inside and outside the Government have warned that such guarantees could inflate a dangerous housing bubble at a time when the property market is showing signs of recovery. The figures produced from the Nationwide Building Society showed all 13 UK regions seeing annual house price growth with the average property now rising in price by 5% per year. Some believe that Help To Buy could artificially push up house prices that are already rising further and faster.
The Adam Smith Institute, a think tank which works to promote libertarian and free market ideas is one of the scheme’s main critics. It argues that without measures to increase housing supply by liberalising planning laws, the Help To Buy scheme will simply drive up demand, plus house prices, which in turn will lead to raising the bottom rung on the housing ladder.
Whatever you may think of the scheme and the merits of launching early, it is true that activity in the housing market has increased significantly over the past few months even without the additional stimulus that Help To Buy may provide. It would be true to say however, that the Help To Buy scheme will be a helpful and positive scheme for those prospective homebuyers who are struggling to purchase a home without assistance from such a scheme.
Whether you are looking to buy a flat or a mansion (as yet still untaxed!) you will still want the best conveyancing service you can get, but keep your costs to a minimum. For people on tight budgets or under the Help To Buy fixed fees and completely transparent pricing so there are no hidden extras or nasty surprises will still be an important consideration. No Move – No Fee in the unfortunate event that your transaction does fall through for whatever reason is also a feature that will remain attractive, no matter what the source of your funding.
We understand that when you are buying or selling a house you will want to know what’s happening. You need reliable information and progress reports so you can make all the other arrangements necessary for moving home. We pride ourselves in delivering one of the best house buying legal services in the business and we are accredited under the Law Society’s Conveyancing Quality Scheme. For a free no obligation conveyancing quote and general help and advice with your house sale or purchase, please ring our team today on 01536 276300 or 01536 511690.