Will ‘Help to Buy’ cause a housing market boom? 2


Home Office

Help to Buy was due to start in January 2014 but it’s been brought forward to start this week.

Here is a link to the 2013 Budget Info Graphic explaining how it works (the rules have been changed a little but it’s a good outline) – HM Treasury

Here is David Cameron announcing the scheme on the BBC on Sunday 29th September

A Help to Buy mortgage guarantee lets you buy a newly built home or an existing property with a deposit of only 5% of the purchase price.

Help-to-Buy will initially be available under the Nat West, RBS and Halifax brands.

Help to Buy mortgage guarantees will be open for loans not only to first time buyers but also to existing homeowners, and be available on new and existing houses with a value of up to £600,000. Buyers must have a 5% deposit.

The Government will guarantee the next 15% of the loan for a fee.

The Help to Buy mortgage guarantee will increase the supply of high loan-to-value mortgages.

The plan has drawn criticism from the International Monetary Fund and Business Secretary Vince Cable, who say it may spark a property bubble.

What do you think?

steve@bicknells.net

2 comments

  1. I believe that there is a great risk that this could spark another property bubble. The thing that may prevent that happening is that lenders that are not government back and who are not under any compulsion from the goverment to adopt the scheme are not leaping onto the band wagon to offer such mortgages.

    My personal view is that the housing market should be allowed to adjust to corrective market forces so that mortgages are “affordable” on the basis of income ratios. Obviously the difficulty we have at the moment is that buyers without the “bank of mum and dad” to support them, either with the deposit or by having the ability to remain living at home for a period of time to save up a deposit, are hard pushed to find a deposit due to the high rents they are being charged.

  2. Nice article Steve. If you consider the supply of mortgage funding to be the air that feeds a potential bubble, there is an increase in the potential risk for a bubble to grow but…someone has put a strict regulator on the air pipe (FSA/FCA,) and although Loan to Value becomes less of a hurdle for most, it is the strict affordability rules which lender’s now operate, which will be the final arbiter on a successful loan application. Thus the availability of funding remains very controlled and consequently the size of the bubble will be mitigated.

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