Affordable housing continues to generate plenty of discussion among property professionals, both in the context of the supply of funding, and as a stimulus for house building. The Help to Buy scheme has divided opinion.
What Is Help To Buy?
- Equity Loan
- Mortgage Guarantee
The Help To Buy Equity Loan
Underwriting the mortgage is still done by the lender in accordance with their existing lending policy. Unfortunately even though overall risk exposure is lower, many people feel that lenders are not acting fairly when assessing that risk. The accusation goes along the lines that a first time buyer on the Help to Buy scheme is effectively asking a lender to advance 75% of the purchase price (or more accurately 75% of the perceived value). However the underwriting process is not reducing the risk loading to the same extent that a person not on the scheme, with a 25% deposit, might enjoy.
In fairness that is probably not a completely balanced way of making a comparison, as the Help to Buy scheme is specifically aimed at helping first time buyers. Underwriters may perceive that a first time buyer on the Help to Buy scheme is a higher risk purely by virtue of being in need of the scheme’s help.
Mortgage Guarantee under Help To Buy
The government is investing £130 billion in the mortgage guarantee scheme which will be available to anyone buying a home (new build or old) from January 2014. There is a limit of £600,000 which is the same cap as the equity loan.
It is hoped that the combination of both schemes will help “Generation Rent” access affordable mortgages with lower deposits.
There is of course a danger that increased availability of mortgages, and therefore buyers will start to push up prices at the entry level. That will naturally translate further up the chain and the property market starts to gather some fluidity.
Most discussion about Help To Buy focuses on the effect that the scheme will have on the property market. Clearly the are some competing vested interests at play here. It will be ironic if the Help To Buy scheme ends up pushing up house prices, thereby excluding the very people it was set up to help.
There is more about the Help to Buy scheme on the Gov.uk portal.