The first part of Help to Buy, an equity loan scheme to help first-time buyers struggling with higher loan-to-value ratios on mortgage, will run out of cash within two years unless the government makes more funds available, a housing expert has warned.
Speaking to FTAdviser, Ray Boulger, senior technical manager at broker John Charcol, said Help to Buy 1 reservations for properties are around 2,500 per month and, if reservations continue at this current rate, the scheme will not last beyond two years.
He said: “Funds for that scheme will run out in two years. New-builds have long completion times so it would actually be finished in two and a half years, but the actual reservation money for the scheme would run out in two years.
The equity loan scheme was designed to provide £3.5bn of additional investment to help people into home ownership, helping up to 74,000 home buyers as well as providing a boost to the UK’s construction sector, according to the government.
The government will provide an equity loan worth up to 20 per cent of the value of the new build home, interest-free for the first five years, for first-time buyers that can provide a 5 per cent deposit. The scheme is only available for new-builds.
The second part of Help to Buy is a mortgage guarantee scheme that helps people buy a newly built home or an existing property with a deposit of only 5 per cent of the purchase price.
According to Mr Boulger, Help to Buy 1 is more attractive to first-time-buyers as the mortgage rates will be around the 3 per cent mark due to a higher combined deposit, compared to around 5 per cent for Help to Buy 2.
He said: “Help to Buy 1 is more appealing to first time buyers and movers – monthly payments are key. So payments for Help to Buy 1 are a lot less and, as a consequence, people who can save more for a deposit can buy a more expensive property.”
Mr Boulger also warned that unless lenders change their lending criteria, they will not be participating in Help to Buy 2.
He said: “In practice [with Help to Buy 2] you can’t buy new build properties as lenders apply their normal criteria for this. Halifax’s maximum LTV is 80 per cent and Natwest is 85 per cent for houses, 75 per cent for flats.
“If those lenders and others who join in the new year don’t change their criteria then that scheme will not be available for new-builds. It will be interesting if they change their criteria. Do they change it back once Help to Buy 2 is finished?
“It is early days [for Help to Buy 2] and we don’t have figures on take up yet but I think it can run for the full three years.”
