Help to Buy Scheme Begins!

by Mark Johnston

Help to Buy Scheme Begins!

The help to buy scheme unveiled in the recent budget is intended to boost the housing market.

The first part of the Help to Buy scheme was launched on 1 April this year and offers aspiring homeowners an interest free loan from the government to help them buy a new build property.

Borrowers need to raise a minimum deposit of 5 per cent of the value of the home, which can cost up to £600,000, and can borrow a further 20 per cent from the government, with the biggest loan available at £120,000. The government backed loan must be repaid when the property is sold.

Current reports from home builders such as Barratt Developments and Bovis Homes have shown that  trading has picked up after the government announced plans in the budget to help struggling house buyers.

Recently, the Home Builders Federation (HBF) said 4,000 people had reserved a new home under the scheme, and that interest had been “huge” with more than 500 buyers taking advantage of it each week.

Stewart Baseley, executive chairman of the Home Builders Federation (HBF), said: “The equity loan part of Help to Buy has got off to a flying start. Four thousand reservations in just two months shows both the consumer demand for the scheme, and developers’ commitment to it.”

This particular scheme also appears to be bringing new business in to the construction industry after months in the doldrums.

Data has suggested that residential building work increased at the fastest pace in more than two years in May.

The Home Builders Federation (HBF) also added that while there has been a significant increase in demand, the industry is confident it will be able to increase the supply of new homes.

Tim Moore, senior economist at Markit, an independent financial information services company, said “While the latest survey provides some hope that rising construction output will support UK gross domestic product (GDP) in the second quarter, the sector remains unlikely to contribute positively to labour market conditions”.

Schemes like to Help to Buy are designed to launch a counter offensive on deposit requirements, but the scheme may actually inflate property prices and turn out to be counter-productive.

James Cotton, from mortgage broker London and Country, says: “The concern is that the supply won’t meet with demand, which could drive up prices.”

Sir Mervyn King, governor of the bank of England and chairman of the monetary policy committee  has warned the scheme must not become permanent. He said that  “Help To Buy is too close for comfort to the United States mortgage guarantee schemes that triggered the financial crisis and should not be extended in three years’ time.”

This particular scheme has also been labelled as one of the most ‘stupid economic ideas’ of the past 30 years by leading City commentator Albert Edwards, who heads the global strategy team at Société Générale.

The Halifax recently reported prices were up in May, though it is too early for Help to Buy to have contributed to this rise.


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