Two years ago the Government launched the first phase of it’s "Help to Buy" scheme, which has now seen more than 80,000 borrowers purchase a home.
Through the first phase of Help to Buy, (let’s call it H2B1), the Government provides an equity loan worth up to 20 per cent of the value of a new build home, interest free for the first 5 years, which can be repaid at any time or when the home is sold, with the borrower putting up a 5 per cent deposit.
Although this scheme helped a lot of borrowers, I can’t help but think that it helped a lot of House Builders too along with the Government who were well behind their "new build target."
Help to Buy 2 followed, which basically plugged a gap which had been created after the credit crunch. Lenders were all targeting mortgage holders with lots of equity and big deposits, which left mortgages for first time buyers with smaller deposits, in short supply.
It was only right that the Government stepped in to help out, as it was they who had put the brakes on the high % lending. Gradually the market started to normalise and more high loan-to-value lending returned which in turn led to a healthy mortgage market.
H2B2 was simple. Lenders offered 95% loans, and the Government insured the lenders. Even those lenders who don’t participate in the scheme have cottoned on to the fact that the market needs more affordable options for those climbing onto the property ladder for the first time. However, the Help to Buy mortgage guarantee scheme still accounts for a sizeable chunk of 95 per cent products currently available on the market. It will be interesting to see what schemes are left once the scheme is wound down next year.
Lenders have changed their attitude to mortgages over the past few years, focusing on affordability and sensible lending. Hopefully they will be confident enough to underwrite their own 95% loans once the Government withdraw!
For more information see our Help to Buy Mortgages or speak to a mortgage adviser now on 01628 507477.
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