Any fears that first-time buyers with small deposits would struggle to access mortgage deals following the removal of the Help to Buy mortgage guarantee scheme in December appear to have been overblown.
The scheme was successful in boosting the range of mortgage options for those with only a 5 per cent deposit to put down. The guarantee helped grow the range of lenders offering deals to 95 per cent of the purchase price, resulting in a much healthier market for that type of borrower.
Lenders such as Tesco, TSB and Nationwide Building Society already offered this type of deal without using the guarantee. Others, including Santander, abandoned use of the guarantee long before its removal.
There are therefore still plenty of options for those with small deposits, and rates have come down, although not as rapidly as they have for lower loan-to-value mortgages. First-time buyers still pay more if they can only afford a 5 per cent deposit, with rates falling substantially for those able to put down a 10 per cent deposit.
The ‘bank of mum and dad’ still plays a vital role in helping many first-time buyers, with products such as Barclays’ Family Springboard and Aldermore’s Family Guarantee offering mortgages up to 100 per cent for borrowers where there is additional cash or equity as security. Others, including Family Building Society, also offer this kind of approach, plus the ability to offset family funds too.
First-time buyers still have access to the equity loan part of Help to Buy for new-build properties, which will remain until 2021. Under this part of the scheme, buyers again need a 5 per cent deposit. The government will then lend them up to 20 per cent of the value of the property they want to buy, or 40 per cent if they are buying in London. Buyers then take out a mortgage for the remainder.
Critics of Help to Buy argue that the scheme has propped up property prices, which ultimately does nothing to help first-time buyers. However, it has undoubtedly benefited many homebuyers wanting new-build properties from an affordability perspective. It also has the advantage of targeting new build to ensure improved supply.
Longer term, once the scheme ends, it will be interesting to see how easy it will be for today’s Help to Buy equity loan users to move without any further support.
The housing white paper has, as expected, focused on the issue of supply. The government’s Starter Homes initiative, involving properties being built on brownfield sites, has yet to make an impact, with the first houses due to be constructed this year.
The original aim was to build new properties aimed at first-time buyers aged between 23 and 40, which will be available at a discount of at least 20 per cent off the market value, with a cap of £450,000 in London and £250,000 outside. The white paper appears to be consulting on how it is applied and on applying an income cap.