A new multi billion housing package has been announced in the UK aimed at boosting the struggling residential real estate market. Some £3.5 billion will be made available to help first time buyers get onto the housing ladder and also others who are struggling to save the large deposits that lenders currently require. There will also be £1 billion of extra funding to build thousands of new homes for affordable and private rent.
According to government officials the £3.5 billion Help to Buy: Equity Loan scheme, aims help up to 74,000 home buyers take their next step on the housing ladder with just a 5% deposit. It will expand and replace the existing FirstBuy model, which is currently aimed at first time buyers purchasing new build properties. Under the new scheme existing home owners will also be eligible to receive a 20% equity loan that will help them buy a new build property, with prospective buyers receiving support to purchase properties from a participating house builder with a value of up to £600,000.
Experts believe that by extending support to existing home owners, the scheme will remove a bottleneck in the market where people want to move, but may be struggling to raise a large enough deposit to purchase their next property. At the same time a separate option, called Help to Buy: Mortgage Guarantee, will enable lenders to use government backed guarantees to offer £130 billion worth of mortgages with smaller deposits, as little as 5%, on new and existing properties.
Where properties are bought under this option, the government will provide security for the loan, so if the house is then sold for less than the outstanding mortgage total the lender will be able to recover its loss.
Reaction from the property industry has been mainly positive but some experts are sceptical whether it will be enough to boost sales while others voice concerns that it could be too successful and raise prices too quickly causing a bubble. ‘This is possibly the most important announcement for the new homes market ever. The scheme is for all, not just first time buyers, and has a cap of properties valued to £600,000 that covers the vast majority of new homes built of any shape or size, in any location across the UK,’ said Guy Jenkinson, head of new homes at property firm Bidwells.
‘Quite simply, it will assist many expanding families, and those with changes of circumstances, who are desperate to move into larger and more suitable accommodation and who have been hampered to date by lack of equity in their own property and the inability to attract loans that come anywhere matching the government’s proposal,’ he explained.
Quote from PropertyCommunity.com : “New mortgage loans in the UK fell in the final quarter of 2012, down 0.5% compared with the previous three months and down 2% on the same time last year.”
Richard Sexton, director of e.surv chartered surveyors, believes that Help to Buy will help stoke the fires of the mortgage market. ‘Prospective buyers need all the help they can get in piecing together a deposit, particularly while their personal finances and savings are being pillaged by inflation. High deposit requirements have been the major roadblock to home buying since the financial crisis hit. They have barred the way for people wanting to get a mortgage and move home, particularly first time buyers. The scheme will increase high LTV lending, increase the number of first time buyers and increase overall house sales,’ he said.
Some in the industry are more sceptical. ‘With VAT on refurbishment and stamp duty remaining unchanged, it may seem churlish to decry any form of support for the property market, but the fact is that the Help to Buy scheme is simply an alternative mechanism to boost use of the funds in the underperforming Funding for Lending Scheme,’ said Ed Mead, director at London real estate agent Douglas & Gordon.
Others want to see more detail before making up their minds. ‘The focus on housing is welcome and promises of a 20% equity loan sounds great in principle, but the crunch will come in what mortgage rates look like for customers utilising it. At the end of the day, someone taking out a mortgage with just a 5% deposit will still be viewed as a higher risk than someone with more cash,’ said Darryl Flay, chief executive officer of property management company Essential Living.
The Royal Institution of Chartered Surveyors (RICS) says that the details that will be revealed in the coming weeks will be vital to the success of the scheme. ‘Helping those who can’t afford large deposits by using the government’s balance sheet to guarantee mortgages and using capital savings to offer shared equity loans on new build for all buyers will help prevent prolonged market stagnation although it presents a significant risk to government,’ it said.
‘The devil will be in the detail about how the government will treat buy to let and those in negative equity. RICS will monitor the impact on the market and prices. However, government need to be careful this doesn’t create another housing bubble, pushing prices up at the expense of buyers,’ it added.