Help to Buy scheme - more comment

 ASK THE EXPERT

Q. What is your view of the Government’s new Help to Buy scheme?

A. The centrepiece of Government efforts to reinvigorate the housing market, this scheme comprises two elements. The first, which started in April, is a shared equity scheme designed to help people buy new-build homes, up to a price ceiling of £600,000.

The second and more significant element – and the one which has recently been in the news - is a new mortgage guarantee scheme, due to start next January, whereby the Government will effectively stand as guarantor for people taking out up to 95% mortgages to buy any property, old or new, up to 600,000 in value. Around £12bn in guarantees could, it is calculated, support up to £130bn of new mortgage lending. The aim here is to stimulate the housing market as a whole, by helping those who could afford the monthly mortgage repayments, but who can’t put down a deposit of more than 5%.

On one level, it sounds like a good idea. Nevertheless, the scheme met with a very mixed reception when it was first announced, with many influential voices questioning whether the Government should be artificially supporting the market in this way, amid concerns that it could merely help to inflate yet another property bubble.

Unperturbed, the Chancellor last week met with major lenders, house-builders and others to brief them more fully on the scheme. But even after the meeting, lenders said there was still some key detail missing, while the wider criticism shows no sign of dying down. The Institute of Directors, for instance, has labelled the scheme “mad”, while the Homeowners Alliance described it as “papering over the cracks” in the UK’s housing crisis. Another critic simply called the whole thing “moronic!”

There is also some concern over what is going to happen to the market before the scheme kicks in. After all, why would anyone struggle to buy now, if next year they can do so with a nice taxpayer-guaranteed mortgage? And why would lenders take the risk of offering any high loan-to-value mortgages between now and January? Some in the industry therefore see this as potentially sending the market into hibernation for the next 5 months.

Perhaps a lot of the criticism could prove to be unfounded. The problem with the scheme, highlighted from several quarters is that it could be seen to ‘prop up the market’ in terms of current values and will not help First Time Buyers to get onto the housing ladder. Their comment being that the government should not tinker with the market but let it find its own level.