The controversial Help to Buy scheme, which many believe has increased demand for UK property, will not be extended beyond its current life of 2016. This is a scheme which has attracted controversy and praise in equal measures although many experts believe it has contributed to the U.K.’s housing problem. This move is part of a wide-ranging adjustment of UK government policy towards the housing sector under the new Prime Minister.
No extension after 2016
The Help to Buy scheme has been in place since 2014 and utilises a £12 billion guarantee from the UK government for lenders in the 95% mortgage bracket. Under previous regulatory changes the UK authorities attempted to reduce the number of so-called high stress mortgages available to alleviate potential problems further down the line. The temporary Help to Buy scheme was seen by many as a political bribe to those struggling to climb aboard the property ladder and allowed lenders to consider higher LTV rates.
There are two sides to this coin, the fact that the scheme did most certainly allow more people to acquire their first property due to additional financial assistance. On the other hand, critics believe that it created demand which was really unaffordable, pushing house prices further and further beyond first-time buyers who arrived later on the scene. It is debatable as to whether more people missed out on their first time purchase because of the scheme pushing prices higher or whether indeed a greater number were able to buy their first property as a consequence of the scheme.
Elements of Help to Buy to remain
While the more “risky” element of the Help to Buy scheme will end this year the equity loan element and the ISA bank account will remain. The equity loan element is not as controversial because it can only be used on new properties thereby encouraging greater activity in the newbuild sector. The ISA tool is a tax efficient way of encouraging future first-time buyers to save with additional financial assistance from the authorities.
The Bank of England has been notified of the changes to the Help to Buy scheme with many at the bank in total agreement with the government.
Will this reduce demand for property?
Supporters of the government believe that support for the 95% LTV rate has effectively come to a natural end because markets are more stable than they were back in 2014. It is debatable as to whether this is the case because there are major concerns about the European Union and the recent Brexit vote. Will the authorities be forced to re-introduce a similar scheme if the UK economy does weaken as we approach the inevitable exit from the EU?
So at this moment in time the element of the Help to Buy scheme which is being withdrawn will supposedly have little impact upon demand for UK property in the short term. If this is the case then many potential first-time buyers will still struggle to reach their dream. As ever, the markets will ultimately decide whether the scheme has worked or not although any impact upon the UK property market will quickly become clear.