Since its introduction in 2013, hundreds of thousands of people have been helped onto the housing ladder using the government’s Help to Buy scheme, which, amongst other things, offers interest free loans to top up buyers’ deposits.
With successive governments under pressure regarding young people being unable to buy their own home due to large price increases and restrictive deposit requirements from mortgage lenders, the scheme was introduced to help first time buyers overcome these issues.
Given the name, you’d assume that the scheme would have helped larger numbers but, due to the fact that the purchases were restricted to new-builds only, it wasn’t taken up by as many as was assumed and played a part in pouring millions into the share price of new house builders.
It wasn’t without its successes, however, and the Help to Buy ISA in particular was considered a good solution for savers that wanted to put their money towards a house deposit with a government top-up promised at the end of the process.
The government are now looking to shake up the scheme and re-launch it for the post-COVID-19 era, which has led some to wonder whether it will lead to a rise in home buyers.
It underlines that the government still sees the property market as a key plank in its strategy to help the economy recover from the COVID-19 restrictions of 2020.
The new scheme
In many ways the re-brand is a little reminiscent of when Coca-Cola relaunched themselves as ‘New Coke’ in the 1980’s with only a slightly changed recipe.
According to The Guardian, ‘The new version offers similar terms – a loan of between 5% and 20% (40% in London) from the government to put towards a new-build house or flat – but, crucially, only first-time buyers can use it.
The loan is interest-free for the first five years and there is a £1 monthly management fee. In year six, buyers will be charged interest of 1.75%. This then rises every year by being multiplied by the consumer price index (CPI) plus 2%. The equity loan must be repaid when the mortgage is repaid, if the home is sold, or after 25 years.’
As with before, the terms are quite strict and come with baggage, so the question of how many more people this is likely to help is a complicated one.
A surge in home buyers?
There is a school of thought that the scheme only really propped up the price of new build houses whilst the rest of the market was largely unaffected, and this is perhaps the most convincing argument.
Whilst there were many that benefitted, in the 8 years since the scheme launched supply hasn’t even come close to meeting demand and there’s been little evidence of any surge beyond those who were in a strong position to buy anyway.
From the perspective of landlords and property investors the truth is that the scheme is highly unlikely to affect the number of private renters or the demand even slightly for the Private Rented Sector (PRS).
As we’ve seen for some years now rents, yields and demand remain high and continue to rise despite economic uncertainty. There’s no reason to believe this will change any time soon.
