THIS year has seen renewed optimism in the UK housing market, according to the Ernst & Young Item Club’s Spring Forecast. It predicts an increase in mortgage affordability, “multiplied by the chancellor’s new Help to Buy scheme”. The well-documented Funding for Lending scheme has already boosted mortgage availability – with more people “feeling they can access the market and on more realistic terms,” according to Simon Rubinsohn of the Royal Institute of Chartered Surveyors. But with most banks still only offering deals with a minimum 20 per cent deposit, where can smaller deposit-holders turn?
The government’s Help to Buy scheme, announced in this year’s Budget, is in many ways just a widening of the existing FirstBuy scheme. But it is a more heavy duty approach, consisting of two strands: Help to Buy equity loans, and the Help to Buy mortgage guarantee scheme. Neither scheme is open to investors wanting to buy-to-let.
The former scheme came into effect on 1 April. It offers interest-free equity loans to buy new-build property worth up to £600,000 both to those who want to move up the property ladder and first-time buyers. Buyers will not be charged loan fees for the first five years of owning a home. In the sixth year, a fee of 1.75 per cent of the loan’s value will be charged; and thereafter it will increase according to the retail price index plus 1 per cent.
But the Help to Buy mortgage guarantee scheme, which opens in January 2014, has a wider focus. It will enable you to buy any home (not just a new build) priced under £600,000, with just a 5 per cent deposit, at more attractive rates than the market might ordinarily offer. “You also won’t have to sacrifice a share of any profit you make when you sell the property – unlike under the shared equity element of the scheme,” says Mark Harris of SPF Private Clients. The scheme plans to create an environment in which many people – who have effectively been squeezed out for the past five years – can access the property market. So if you are thinking of buying, you may want to wait until next year.
But fears abound that the Help to Buy scheme will push up property prices, particularly if London is your starting point. “It wouldn’t be a surprise to see some impact on pricing,” says Rubinsohn. It is effectively a generous underwriting of a substantial part of the property market, and the government could be forced to either withdraw the scheme as too generous or potentially dangerous.
And James Greenwood of Stacks Property Research warns of the pitfalls associated with purchasing a new build. “Like a new car, a new build looks shiny. But like a new car, its value can depreciate considerably when you come to sell. They are often cleverly designed but with less square footage than elsewhere on the retail market locally.” He advises buyers to look at square footage and size of plot. A full-structuring survey is also essential, but this costs money. Buyers need to be careful not to pay a premium, and be weary of quality of build.