Your IndustryAug 7 2014

Could the government pull the plug early?

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The Help to Buy Mortgage Guarantee is scheduled to end in 2016 and the Help to Buy Equity Loan Scheme has been extended to 2020.

But changes could be made to the scheme before then as the government has given further powers to the Bank of England Financial Policy Committee to amend the scheme should they feel that it is necessary to do so.

The worst fear is that the plug could be pulled on the scheme altogether.

Recent figures would suggest that Help to Buy should not be cause for too much concern as it has just hit the intended target and been used predominantly by first-time buyers, says David Hollingworth, associate director of London & Country Mortgages.

In addition, he says the usage in London and at the upper end of the price scale has been extremely limited. Therefore he says it would so far look like Help to Buy has not been a key driver of the rapid house price inflation in London and the south-east.

Mr Hollingworth says: “The government has already committed to the equity loan element of the scheme until 2020.

“This part of the scheme not only helps buyers but targets the new build sector so should also stimulate more new properties, which are needed to address the underlying imbalance of supply and demand.

“The mortgage guarantee part of Help to Buy was not included in that extension and is due to end in 2016. There could be more pressure on this element for an early withdrawal although it is still relatively early days for the guarantee.

“It is likely that there will need to be an exit plan in place before there is any desire to pull the plug if that part of the market is not yet ready to stand up unaided. Private insurers may be part of any exit plan in order to supplant the government guarantee.”

Help to Buy 2 is the part of the scheme most likely to be first to go, says Richard Sexton, director of e.surv, as it is the arm getting most of the blame for stimulating buyer demand and pushing property prices upwards.

But if the government looks at the facts, Mr Sexton says it will let Help to Buy 2 run its course. It is more likely that the cap value for Help to Buy 2 below the current £600,000 limit, rather than the scheme is pruned back before time, he adds.

Mr Sexton says: “Prematurely cutting back Help to Buy would be a step backwards for the housing market. Confidence would drop - and mounting deposit requirements may be too much for many buyers.

“In particular, it could hamper the recovery of the housing market in areas outside of London, which have been slow to crawl out of the post-crisis gloom, and are only now beginning to show new life.”

Mr Sexton says in a move to curtail the impact Help to Buy could be regionalised, to reflect the differing needs of buyers within each area of the country.

Brian Murphy, head of lending at Derby-based Mortgage Advice Bureau, says if the Help to Buy 1 scheme were to be pulled early it is unlikely that any lenders would be willing to move into the Shared Equity loan arena currently funded by government.

He says: “This would in all probability result in the national and regional house builders radically reducing their house building plans and as a consequence put even further pressure on the nation’s chronic housing stock shortage.”

The most likely outcome of concerns about the impact of the scheme is that limitations could be applied, he agrees. Maximum purchase price that a property could be purchased at within the scheme could be reduced, says Mr Murphy.

Geographical limitations or restrictions in terms of where the scheme could be accessed could potentially also be applied, says Mr Murphy.

But lenders say if the plug was pulled on Help to Buy early, the government would not wish to see people struggle.

Ian Wilson, head of Halifax Intermediaries, says there are many similar alternative schemes that first time buyers and home movers could consider in the quest to purchase their next home.