Hello everyone and welcome to Episode 10 of Ask the Estate Agent and I just wanted to start today with a huge thank you to all our listeners out there who have supported us so far to our tenth episode!
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Today’s show is about one of the key tools out there to assist people getting on the property ladder and that’s ‘Help to Buy’
With the initial phase of the Help To Buy scheme being introduced in April of 2013, the scheme is celebrating its fifth birthday. Rather than breaking out the cake and party hats, it is probably an apt time to consider Help To Buy In more depth. In this podcast, we aim to shed some light onto the scheme, and hopefully develop an understanding of Help To Buy while maximising ways to benefit from the scheme.
What Is Help To Buy?
Announced in the 2013 Budget speech by the Chancellor George Osborne, Help To Buy was a Government programme aimed at helping people buy property, with the title of the programme explaining its aims fairly well.
While it was the largest Government intervention in the property market since the 1980s, Help To Buy was an extension of the FirstBuy programme, although FirstBuy, again as the name suggests, was solely for first-time property buyers.
In the past five years, Help To Buy has evolved but as with anything provided by any Government, there has been debate as to the merits of the scheme.
What are the Help To Buy schemes?
As of April 2018, the Help To Buy schemes in operation are:
- Help To Buy: Equity Loan / London Equity Loan
- Help To Buy: ISA
- Help To Buy: Shared Ownership
The equity scheme option sees the buyer providing a 5% deposit while the Government provides an equity loan for a figure up to 20% of the property value. The buyer must then decide to fund the remaining figure, with a mortgage usually being the preferred option. In London, the Government will provide an equity loan up to 40% of the property value.
The restrictions on the equity loan state that the property must be a new-build property and that the loan must be below a stated amount. In London, the maximum loan is £600,000 and in Wales, the maximum loan is £300,000.
For the first five years of the loan, there is no interest payable (classed as an “interest free loan”) and so far, the equity loan option has been the most commonly arranged Help To Buy scheme. If someone refers to Help To Buy as a single programme as opposed to the overall scheme, it is likely the equity loan option they are referring to.
With the Help To Buy ISA, savers pay money into an ISA and can receive additional funding from the Government. Some of the key points of the ISA programme include:
- The chance to deposit an initial sum up to £1,200
- The ability to save up to £200 per month
- The Government will provide a bonus of 25%
- The minimum bonus on offer is £400, so you must have saved at least £1,600 to achieve this
- The maximum bonus on offer is £3,000 so you must have saved at least £12,000 to achieve this
- The bonus is available per person, not per household or purchase, so couples could save independently to both generate bonuses
The Help To Buy ISA is only available to first-time buyers. Also, the property must be priced at £250,000 or less to receive the support, or £450,000 or less if the property is in London.
The Shared Ownership scheme was already available from housing associations, but it is now regarded as part of the Help To Buy programme.
There was also the Help To Buy: Mortgage Guarantee scheme which assisted buyers to obtain a more affordable mortgage. The scheme provided backing to mortgage lenders, which provided them assurances about being paid, which meant that lenders were more likely to offer loans. However, this scheme was closed with respect to new loans as of the 31st of December 2016.
It was argued that the increasing number of lenders offering 95% mortgages meant that there was no longer a need for this scheme and the Government reiterated that this scheme was scheduled to run until 2017.
Does the Help To Buy Scheme work?
Given that there are so many influences on the property market, it can be difficult to ascertain how much influence a particular scheme had. However, in the first year of the initial phase of Help To Buy, a fifth of the new homes built and sold were bought through the Help To Buy scheme. In a report of April2014, the Financial Times stated that there was “clear evidence” that in its initial year, Help To Buy had motivated lenders to provide more attractive loan-to-value ratios and that there was a significant increase in the volume of products with a ratio greater than 90% available to choose from.
In October of 2017, Chancellor Phillip Hammond stated; “The Help to Buy equity loan has achieved much higher take-up than we expected, helping 130,000 families so far with a deposit for their own home.” Earlier on in 2017, BBC News undertook analysis that suggested that one on three new build-homes outside of London had been purchased through Help To Buy.
Have there been problems with Help To Buy?
While there has been enough positivity surrounding Help To Buy to allow the Government to trumpet the scheme, there has also been opposition to the scheme.
Shelter, the housing charity, released a statement in 2017 saying the scheme has; “barely helped the first-time buyers it is targeted at”. One issue that many people have with the scheme is that the period when it was introduced in 2013 was the same time when property prices started to rise again. This negated the benefit of the scheme for many buyers, providing current property owners with a greater advantage than the group the scheme was said to support.
The Office for Budget Responsibility has stated some opposition to Help To Buy for that reason, and the same organisation has criticised the removal of stamp duty for first time buyers purchasing property at less than £300,000, introduced in late 2017, for the same reason.
There was also strong criticism for the Help To Buy Guaranteed Mortgage scheme from the Chief Economist at the Institute of Directors, who classed the scheme as very dangerous. This comment was based on the fact that the pressing need for help in the property market falls on the supply of property as opposed to the purchasing of property.
There is no denying that the Help To Buy scheme hasn’t been as effective in London as it has in the rest of the country. This shouldn’t be a surprise given the higher property prices in London but the same study which found that one in three new build homes across the country were purchased with Help To Buy, only one in ten new build properties in the capital were purchased in this manner.
How To Maximise Help To Buy?
If you are looking to buy a home and you are seeking help, it makes sense to obtain as much assistance as you can. This is why many buyers are keen for ways to maximise the Help To Buy scheme.
With the ISA, the most effective way is to prioritise your saving capabilities and if you can, work with a partner. Having the chance to place £1,200 into your ISA in the opening month is a fantastic opportunity so it makes sense to save money before you open the ISA. With the minimum amount required for a bonus being £1,600; a savvy saver could be eligible for a £400 bonus within the third month of their account.
There is also the fact, as stated earlier, that the bonus is not per purchase but per person, so if you are able to save separately as a couple, the bonus you receive can be enhanced.
It is also possible to combine the Help To Buy ISA with the Help To Buy Equity Loan, providing a further enhancement in affording property. Of course, with the Help To Buy ISA only available for first-time buyers, and the Help To Buy Equity Loan only being suitable for new builds, this combination would only work for first-time buyers purchasing a new build property.
With respect to Help To Buy continuing, there are signs that the initial phase is set to be extended. The phase is at least scheduled to run until 2020 but in spring of 2018, The Department for Communities and Local Government confirmed the scheme will continue to run until at least 2021.
This was an announcement made to appease the construction sector, and it is worthwhile remembering that it is not just property buyers who have benefitted from Help To Buy. Existing property owners, lenders and building firms have all benefitted from Help To Buy, and in this regard, there are concerns as to what would happen if the funding was stopped.
As with so many things in the property market, there is a difference of opinion about the impact and suitability of Help To Buy. At Ask the Estate Agent, we appreciate that more support is needed for buyers in the market, and while there is valid criticism that not enough is being done to provide more homes to the market or support enough first-time buyers, it would be churlish to suggest that Help To Buy hasn’t assisted many people venture onto the property ladder
So that concludes todays episode on Help to Buy. I hope you’ve found it useful and that it’s given you a few pointers to take away and consider as you plan and search for you’re first time purchase.
For further details on everything discussed in today’s episode please visit the official Government Help to Buy website at: https://www.helptobuy.gov.uk/
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So don’t forget to contact us with any subjects you would like us to cover or questions you would like answering and until next time I would like to thank you for listening and goodbye for now.