The Government confirmed yesterday that the Help to Buy mortgage guarantee scheme will close at the end of the year, bringing an end to three years of Government support for first-time buyers. But will it have an impact on your homeownership aspirations?
The scheme was first introduced in October 2013 in an attempt to boost lending at high loan-to-values (LTVs) and help first-time buyers get a foot on the ladder. Happily, it appears to have had the desired effect: official figures show that the scheme has supported 86,341 purchases since its launch, with 79% of those being to first-time buyers (FTBs), and has led to a surge in activity in the high-LTV sector with a welcome boost in competition and product choice across the market.
As a result, Chancellor Philip Hammond has written to Mark Carney, Governor of the Bank of England, to say that the scheme will close to new loans at the end of 2016. He says that it's been successful in kick-starting the high-LTV market with the figures demonstrating that the purpose of the scheme "has been successfully achieved", and that given the average price of a home bought through the scheme stands at £157,000, it's been shown to support responsible lending.
It was always intended to come to an end this year, but there had been calls for it to be kept going, particularly given recent events that could create uncertainty in the market. There were fears that lenders could once again become reluctant to operate in this sector without a Government guarantee to act as a backup, so the decision to wind down the scheme has come as a bit of a blow.
However, the Chancellor doesn't see this as a problem. He said in his letter that the high-LTV sector has become "less reliant on the scheme as confidence has returned," citing the fact that there are now over 30 lenders that offer 90-95% LTV mortgages outside of the scheme. He believes that the closure of the scheme "will be unlikely, in current market conditions, to affect significantly the provision of finance to prospective mortgagors, including high LTV borrowers".
So which is it? The Chancellor certainly seems to think that the high-LTV sector will continue to flourish without the scheme being there, but critics think otherwise. Much of it could come down to how the mortgage market as a whole reacts to the uncertainty caused by the referendum, but our latest figures show that lenders are already becoming slightly more cautious about lending to those with only a 5% or 10% deposit.
All may not be lost, however, as it's worth pointing out that the Help to Buy Equity Loan scheme – the phase of the initiative that provides support to buyers in the form of a Government loan – is still open for business, so FTBs could still find some help. However, the market here is slightly different: although 81% of the 91,759 properties bought using the equity loan scheme have gone to FTBs, the scheme is only open to those buying new build homes, which means the average value of those properties is far higher at £226,887.
This perhaps isn't something that everyone wants to take on. There'll be a lot more to think about in terms of future repayments and the possibility of securing a suitable mortgage in the future, particularly for those seeking a higher-value home, and as a result, many could miss the simplicity of the Government guarantee.
This means that those who were thinking of taking the plunge with the Mortgage Guarantee scheme may want to be quick about it, before those Government-backed mortgages disappear from the market. But don't overlook 95% LTV mortgages offered by those who aren't participating in the scheme – it could well be possible to snap up such a mortgage at a lower rate than that offered by scheme participants, so it's definitely worth checking!
Ultimately, it's hoped that the closure of the scheme won't stop you from taking that all-important first step on the ladder, as there should still be plenty of other options available. But, if you're concerned – and if you're in a position to do so – start checking out the top first-time buyer or Help to Buy mortgages to see what's out there.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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