Fears that Help to Buy has been causing a boom in house prices seem to be unfounded. Figures just released show that the overall take-up of mortgages under the two Help to Buy schemes has been just 4% of the total number of loans granted in the period April 2013 – March 2014.
The Help to Buy: mortgage guarantee scheme has come in for a good deal of criticism since it was introduced in October 2013. Under the scheme the Government offers lenders the option to purchase a guarantee on mortgage loans where the borrower has a deposit of between 5% and 20%.
The scheme can be used for mortgages on both new build and existing homes, and can be used by first time buyers, home movers and for those remortgaging.
7, 313 mortgages were granted under this scheme to the end of March, which amounted to just 1. 3% of the total number of residential mortgages completed in the UK over the same period.
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Help to Buy mortgages are mostly at lower end of the market
When this scheme was first announced some critics suggested that very wealthy people would take advantage of it to buy expensive homes. However the figures show that the majority of people taking up mortgages under the scheme had a household income of between £20, 001 and £50, 000. Households with an income over £80, 000 made up just 10 per cent of all completions
It is also apparent from the statistics that the vast majority of these mortgages were on lower-value properties. Although the scheme can be used to buy properties worth up to £600k, 45% of the loans were for the purchase of homes priced below £125, 000. Mortgages for homes between £125, 001 and £200, 000 accounted for nearly another 40%.
Few loans are on homes in London & South-East
The government figures also show that the majority of loans under both the mortgage guarantee scheme and the equity loan scheme have been for homes outside London and the South-East. So it would seem that Help to Buy cannot be blamed for the rapid growth in house-prices in these two areas over the last year.
The equity loan scheme which is also available under Help to Buy has been somewhat more popular. 20, 548 properties were purchased with the support of the scheme in the first 13 months to the end of April 2014.
This scheme is only available for the purchase of new-build homes, unlike the mortgage guarantee scheme which is now available for all properties.
Equity loans provide borrowers with a top-up to an ordinary mortgage and this scheme is again aimed at helping those with small deposits to buy a home. The top-up is in the form of a loan of up to 20% of the cost of the home, with no repayments having to be made for the first five years.
Help to Buy widely used by first-time buyers
Existing homeowners are now eligible for help under both the Help to Buy schemes. But first-time buyers still account for over 80% of those helped. This may be because earlier versions of Help to Buy were only available to first-time buyers and many homeowners are under the impression that this is still the case.
These figures should help to silence some of the critics and give encouragement to those involved in the property market. The director general of the Council of Mortgage Lenders, Paul Smee, said:
“Broadly, we should be reassured by the latest data on Help to Buy. The policy appears to be reaching the geographical parts of the market where recovery has been weakest, while accounting for only a small proportion of business in those areas where the market is more active. On the basis of these figures, the scheme appears to be successfully reaching its target group of creditworthy borrowers who would otherwise be unable to buy until they had accumulated a more significant deposit. Lenders are always mindful of what their customers can afford.
“Throughout the UK, the proportion of business accounted for by Help to Buy has to date been modest overall. Any worry that the scheme risks stoking a housing boom fortunately does not seem to be playing out in practice so far. “
The government will no doubt be pleased with these figures, which should mean that the Help to Buy schemes will continue to play a part in encouraging more growth in the housing market.