Is the Government Help to Buy Scheme a good deal for buyers?
Help to buy is a housing scheme introduced by the United Kingdom in April 2013 that aimed to help first time buyers buy property in addition to help the recovering housing market after the 2008 crisis. There are 4 different schemes available under Help to Buy:
- Help to Buy Equity Loans: Buyers pay a 5% deposit, the government provides up to 20% of the equity loan and the rest is paid by the buyer (generally from a mortgage).
- Help to Buy Mortgage Guarantees: Several banks around the U.K. offer 5% deposit mortgages and the government is your guarantor for the mortgage.
- Shared Ownership: A person can purchase a share of the home, even if they can’t afford to pay a mortgage. This was an option before the Help to Buy Scheme.
- NewBuy: Aims to help people who can’t really afford a mortgage get a smaller deposit to buy a newly built home.
Has Help to Buy Been Successful?
In essence, Help to Buy has been very successful at rebuilding confidence in the housing market, particularly for first time buyers. In the first month of Help to Buy more than 2,000 homes were arranged with Help to Buy mortgages at the average price of £163,000 with less than a £9,000 deposit. The Help to Buy scheme as made it possible for just about anyone to get a 5% deposit on a government-backed mortgage of £600,000. First time buyers have been given the support and assistance they need to buy property and accumulate equity rather than throwing money down the rental drain.
Does it Help existing Home Owners to Sell more Quickly
The answer to this question is both yes and no. Some of the schemes help people to more easily attain a mortgage on a existing home and this new supply of buyers is helping home sellers to find a buyer and achieve a sale at a quicker pace. However, some of the schemes only apply to new build homes so in this instance buyers are bypassing the desperate sellers and many home sellers, for example who live near a new build development will probably loose out to the more easily attainable new build home. Help to Buy has accelerated the demand of supply but with the least amount of new houses being built in 2012 since the 1940’s, there’s a fear that the market will become unbalanced. With housing prices in 2013 increasing by £1,000 per month and the 2014 predictions of a monthly increase of £1,600 per month and 8% increase on the year, people are having worrisome flashbacks of the 2008 economic crisis. While many economist believe housing bubble talk is premature, easily obtained mortgages and high housing prices have U.K. property buyers remembering that history does repeat itself.
What do Buyers Think of Help to Buy?
As a new buyer or somebody who is trying to climb the real-estate ladder the idea of Help to Buy could be the scheme that makes your property dreams a reality, but is it too good to be true? After the housing bubble mortgage lenders are cautious to give loans that exceed 4-times the borrowers salary. With the average house in the U.K. at more than £400,000 that means the buyer must have a £100,000 salary to take advantage of the 5% deposit Help to Buy mortgages.
In a survey conducted by Mortgage Advice Bureau buyers expressed that rather than the U.K. government offering a low deposit on a high-interest mortgage they would rather see the benefits of a high-interest savings account. Buyers could then start a saving account that could help buyers save for a large deposit rather than a 5% deposit that Help to Buy offers.
The Help to Buy housing scheme is a step in the right direction to recovering the U.K. housing market after the economic crisis. However, there are a lot of reservations over the scheme as the trend continues to increase demand without an increase in supply the housing prices will continue to rise and a housing bubble could be emerging. For first time buyers the Help to Buy scheme could be exactly what you need to help gain equity with a little deposit but it’s important that buyers also remember that a 5%-15% deposit means you have an 80-95% mortgage to pay off with relatively high interest rates.
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