We ask the experts if the new Help to Buy scheme really will assist first-timers or simply push up house prices
THE LENDER: Kim Rebecchi, Sales and marketing director, Leeds building society
We very much welcome this. We know there are many first-time-buyers who can afford the mortgage repayments, but are unable to provide a large deposit. That is why we launched our Helping Hand 95% mortgages with a number of local authorities. Local authorities place funds into a ringfenced interest-bearing account with the society as security, and Leeds provides a very competitive mortgage that requires only a 5% deposit. Helping Hand has proved to be a template that works well. The Help to Buy scheme will operate on a much larger scale than our initiative, although it will follow a similar idea.
While we need to see the details, Help to Buy is a positive step for the housing market and the wider economy. Its full impact will take time to assess but I do not think it will have a major effect on house price inflation
THE CAMPAIGNER: Duncan Stott Spokesman for first-time buyer pressure group Priced Out
Help to Buy should really be called Help to Sell, as the main winners will be developers and existing homeowners who will find it easier to sell at inflated prices. Pumping more money into a housing market with chronic undersupply has one surefire outcome: house prices will go up. At best it may help a small number of new buyers, but it will mean housing becomes more expensive for all those who follow.
The major problem faced by first-time buyers is high prices and the daunting levels of debt needed to enter homeownership. Of all the policies you could think of to tackle this, it is harder to think of a riskier or more short-termist policy than Help to Buy. House prices across much of the UK are already unaffordable for young adults and families with ordinary earnings, so this extra upward pressure on prices will create far bigger problems in the future. If the government is happy to take on exposure to the housing market, it would be much wiser to invest directly in building more houses, with the focus on targeting areas with the most chronic housing shortages.
THE DEVELOPER: Stephen Teagle, Head of Affordable Housing and Regeneration, Linden Homes
Up to now, the government’s market stimulus packages have been important for the sector but financially timid; that diffidence has gone with the launch of the Help to Buy initiative, which has the potential to be market changing and accelerate housing supply. It will now all depend on mortgage pricing being realistic and a willingness of UK housebuyers to engage with shared equity and no longer see it as a minority sport. It could have far more of an impact than Norman Lamont’s housing market package, which was the last time a government sought to promote activity across the new-build and secondhand markets.
If mortgage pricing is competitive, the £3.5bn of shared equity will immediately act as a spur to housing supply and translate into more jobs, growth in local economies and confidence for developers to invest and open up more sites.
THE ESTATE AGENT: Susan Emmett, Director of Savills research
Help to Buy will have a more far-reaching effect on the property market than previous incentive schemes. Although the initiative is not aimed solely at first-time buyers, Savills calculates that the £3.5bn equity loan part of the deal, which starts on 1 April, will help 25,000 people a year over the next three years. Assuming lenders play ball, the mortgage guarantee part of the scheme could support a further 190,000 sales a year once it is launched in 2014. The main impact will be to increase transaction levels, and there may be a nudge up in house prices. However, the increased activity is likely to instigate more housebuilding, which will keep price rises in check. We don’t expect to see a surge in values given buyers will still be constrained by affordability and lenders will continue to be cautious.
Housebuilders are already gearing up to meet an increase in inquiries from buyers. And with good reason. Existing incentive schemes already account for 20‑25% of major housebuilders’ sales. The equity loan component of Help to Buy has wider appeal than the existing FirstBuy scheme as it is not means tested and is available on purchases up to £600,000. It is also more generous to homebuilders as it removes the need for a builder’s contribution. As it runs for three years it will also give developers a chance to plan ahead and increase construction, which could help alleviate some of the housing shortfall.
THE MORTGAGE BROKER: David Hollingworth, London & Country Mortgages
The constraint on mortgage lending for those without a significant deposit has definitely choked off the hopes of some aspiring first-time buyers, especially those unable to get help from the Bank of Mum and Dad. Help to Buy should improve the availability of and rates on mortgages for those with small deposits, which will help those struggling to save for a deposit no end.
However, that access to mortgage finance will still depend on the borrower meeting the tougher lending criteria of the current market. Affordability is at the heart of the tightening in the market with lenders seeking much more detail in reaching a lending decision. The regulator’s Mortgage Market Review entrenches that in the market framework to prevent a return to laissez-faire lending practices.
THE ECONOMIST: Simon Rubinsohn, Chief economist, Royal Institution of Chartered Surveyors
The range of measures announced under the Help to Buy scheme to kickstart the housing market are much needed. Helping those who cannot afford large deposits by using the government’s balance sheet to guarantee mortgages and using capital savings to offer shared equity loans on new-build for all buyers will help prevent prolonged market stagnation – although it is a significant risk for government. The devil will be in the detail about how the government will treat buy-to-let and those in negative equity. RICS will monitor the impact on the market and prices. However, government needs to be careful this doesn’t create another housing bubble.
CASE STUDY: The homeowners who now hope to move
Firefighter Tom Peirson and his wife Emma, a hairdresser, don’t look like the sort of people to have been much affected by the financial crisis of the past five years. He’s a public sector worker on a decent wage, while she runs her own salon. Yet Britain’s property boom and bust have left them struggling with negative equity, cutting back so they can save for a large deposit on a new home for their growing family, and abandoning saving for a pension.
The couple bought their home in Halifax in 2005 for £85,000, but seven years later they have found it impossible to sell – even after cutting the price to £75,000. They want to move from a two-bed to a three-bed house, but until now their only option has been to try to save £20,000 from their salaries.
“I’m relatively well off for someone in this area,” says Tom. “The basic salary for a firefighter is just over £28,000, while I know plenty of people who are getting just £6 an hour. But we are having to live off my wage entirely, so we can put all of Emma’s wages aside to save for a new house.”
The “mortgage guarantee” part of the Help to Buy scheme, when it starts in January 2014, should assist the Peirsons, as low-deposit mortgages should become easier to get and the pricing falls. Crucially, this scheme is for movers and those remortgaging, as well as first-time buyers.
Because their existing property is in negative equity, they need to save a very large amount to be able to afford to move, in effect putting them into the same camp as a first-time buyer.
Falls in the base rate mean the couple only have to find about £400 a month for their mortgage, keeping it affordable for now, despite the loan being greater than the house’s value.
But while they have been saving for a large deposit to move on, hopes of building a pension have been put back. “A lot of people seem to think firefighters get a massive pension,” says Tom. But I joined the service only a few years ago, so I don’t get to retire until 60 and I have to pay in 11% of my wages. I had to opt out as I couldn’t afford that at the same time as saving for a house.”
Money | guardian.co.uk
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