Month in Mortgages: Is Help to Buy helping people buy?

Unsurprisingly, given all the hyperbole that dominated discussion of the scheme’s second phase, Help to Buy mortgages and the effects on the market of the buying frenzy they are seen to be catalysing emerged as the key theme in January.

Following on from the equity loan first phase that launched in April 2013, the second part of Help to Buy is a mortgage guarantee scheme that covers just shy of 15 per cent of lender losses in the event of borrower default.

The scheme is designed to improve conditions for all prospective buyers to purchase a pre-owned or new build property worth up to £600,000 with as little as a 5 per cent deposit of the purchase price.

Article continues after advert

Despite protestations from some - including the Treasury Select Committee - warning of an impending housing market bubble caused by rowing demand-supply imbalance, applications for the scheme were actually brought forward by prime minister David Cameron to October 2013.

This month, we saw a wave of launches as well as a number of data releases pointing to a predicted rise in house prices, though obviously the degree to which any part of the Help to Buy programme is behind this is open to debate.

Do we need help to build?

In the first week of January, statistics published jointly by the Prime Minister’s Office, the department for community and local government revealed the number of people who have put in offers for homes under the Help to Buy scheme trebled to 6,000 in just two months.

The figures showed 4,000 more people have applied for Help to Buy mortgages since November, when initial figures indicated an uptake of 2,000 in the first month of the scheme.

Elsewhere, Nationwide data revealed that house prices had increased in all UK regions. While this is good news for those already on the housing ladder, Nationwide pointed out that part of the reason for acceleration in house price growth is that the supply side of the market has not kept pace with the upturn in demand.

For example, in Q3 2013 the number of housing transactions in England was around 25 per cent below pre-crisis levels, while the number of new homes built was around 45 per cent lower.

The Royal Institution of Chartered Surveyors also warned that property supply must increase or property prices will become “unsustainable”, as Rics data revealed the number of homes sold per chartered surveyor reached its highest point since March 2008.

However, Nationwide’s housing economist Martin Ellis said that continuing pressures on household finances, as earnings continue failing to keep pace with consumer price inflation, will constrain demand.

This will potentially encourage and enable more owners to put their property on the market for sale over the coming year, therefore boosting supply, he said.

Is scheme helping to buy?

Following launches in December from the likes of Virgin Money, high street banks Lloyds and Santander, as well as Royal Bank of Scotland subsidiary NatWest Intermediary Solutions, unveiled their Help to Buy 2 ranges.