Prior to the launch of Help to Buy, and post credit crunch, options for those hoping to get a foot on the property ladder were limited.
The availability of high loan-to-value mortgage products has increased significantly since the launch of the Help to Buy scheme in 2013, particularly at 95 per cent LTV.
The Council of Mortgage Lenders estimated that almost half (48 per cent) of first-time buyers were unassisted in 2014, compared with only 34 per cent in 2011, but a spokesman for HM Treasury said the government believes this is still too low.
The Treasury pointed to CML statistics which show the volumes of first-time buyers entering the housing market remaining well below pre-crisis levels.
“One of the barriers to first-time buyers wishing to buy their first property is the length of time required to build up a deposit. The rate of interest on savings has fallen significantly since 2008 as a result of the activist monetary policy needed to support the recovery,” stated the Treasury spokesman.
“People making the difficult choices necessary to save towards buying their first home have been impacted by the low interest rate environment and the increase in deposits since the financial crisis. The Help to Buy Isa will support first-time buyers by rewarding regular saving.”
Having a good supply of first-time buyers is a key element of a healthy housing market, noted Zack Hocking, head of savings at Virgin Money.
While many would-be first time buyers have the necessary income to support a mortgage, Mr Hocking noted that some do not have all of the capital to fund the necessary deposit.
“The Help to Buy Isa scheme could be a great option for them, giving a boost to their deposit, helping to maintain a healthy supply of first-time buyers to support the market,” he stated.
As the Help to Buy Isa only launched on 1 December, David Ingram, founder of mortgage adviser directory MyLocalMortgage.co.uk, reckons it is too early to say if the savings scheme will give first-time buyers the boost the government hopes it will.
“Leading up to the launch of the Help to Buy Isa on 1 December, opinions had been divided on whether the scheme will help the housing market. Critics of the Help to Buy scheme in general have warned that the addition of a special Isa could fuel a further increase in house prices by pushing up demand when there isn’t enough supply,” he explained.
“On the other hand, the Autumn Budget statement saw the chancellor commit to building 400,000 new homes before the end of the decade, which could go some way towards solving the country’s lack of housing supply.
Mr Ingram continued: “As the scheme has only just launched, only time will tell whether its effects will be positive or negative. However, there is little doubt that it gives first-time buyers a much needed incentive to kick-start their savings and get themselves on the property ladder.
“It may not appear to be much, but when it comes to saving for a deposit along with the other expenses of purchasing a home, a little extra help can go a long way for first-time buyers.”
Simon Checkley, managing director of Private Finance, said that while the Help to Buy Isa is a great tool for overcoming the challenge of saving for a deposit, there are other options to consider.
With many shared ownership schemes now available, as well as a large number of competitively priced 90 per cent and 95 per cent LTV deals, he commented that potential first-time buyers may not need as much of a deposit as they think.
“The best deals for first-time buyers right now offer a cashback incentive to assist with moving costs. For example, Nationwide offer a £500 cash back incentive to first-time buyers on their two-year fixed rate at 90 per cent LTV, currently 2.64 per cent.
“However, one thing that the more recognised lenders don’t tend to be very sympathetic towards is that first-time buyers generally have a far more limited credit history/footprint, which occasionally means they do not meet the lenders strict scoring, particularly at high loan-to-values,” said Mr Checkley.
“In this scenario, a lender such as Clydesdale Bank, which credit searches to ensure only that there is no negative credit (rather than scoring based on a history of managing credit), offer specialist first time products at 90 per cent and 95 per cent loan-to-value, starting at 3.79 per cent.”
As far as alternative strategies for getting on the housing ladder are concerned, Mr Checkley pointed out that these may include buying somewhere cheaper outside of London, or on the outskirts of any UK city, in order to get on the ladder.
“Properties like these will require a smaller deposit and there is still the possibility of gaining capital appreciation, therefore you will have a bigger deposit for your next move.”
He also noted that the scope of choice has its downsides. “It is now going to be even more confusing for first-time buyers with all the different schemes and products to choose from.
“Therefore it is crucial that they seek the advice of a trusted and experienced adviser who can explain all the options available and guide them through every step of the process.”
The success and impact of the scheme will therefore depend on how many people take the government up on the Help to Buy Isa offer.
A study released by financial comparison website money.co.uk revealed that prior to the launch of the Help to Buy Isa, almost half of first-time buyers (45 per cent) claimed they would not open one of the accounts - despite a potential bonus of up to £6,000 per couple.
The research, carried out among 1,000 consumers who planned to buy their first property in the next five years, showed that one of the biggest barriers to entry is that savers cannot pay into a Help to Buy Isa and a standard cash Isa in the same tax year.
Almost a third (32 per cent) claimed they already invested in a cash Isa this year and say this is the reason they would not open a new account.
Equally, 29 per cent were put off by the terms and conditions, which include strong stipulations around how the money is withdrawn and spent.
A further one in five (19 per cent) felt the government is not pledging enough to help and 13 per cent did not trust the government to pay the bonus.
