The scheme which allows buyers of new homes to access a government backed loan of up to 20% of the cost of a property has been hugely popular and credited with boosting the real estate recovery.
Chancellor George Osborne has confirmed the move ahead of his Budget which will be presented to Parliament later this week.
He told the BBC that the Help to Buy scheme phase one which was due to end in 2016 will no be available until 2020.
He also confirmed that the UK’s first new garden city for 100 years will be built in Kent and initially create 15,000 new homes. The site chosen is at Ebbsfleet.
He is expected to announce on Wednesday that he fully backs the upturn in construction in the property world and that getting Britain building is regarded as a key to helping the economy improve even more.
He said that the extension of Help to Buy will support the construction of 120,000 new homes. But others have already warned against such a move, most notably Bank of England governor Mark Carney who feels it needs to be watched to avoid a property price bubble, especially in London and the South East of England where prices are rising faster than elsewhere in the country.
Under Help to Buy, the government lends a prospective home buyer up to 20% of the cost of their new build home so a buyer needs only a 5% cash deposit and a 75% mortgage to make up the rest.
The extension applies only to the first phase of the scheme, which is for new build homes. There is likely to be no changes to phase two of Help to Buy which provides mortgage guarantees for banks lending to buyers with small deposits.
Grainne Gilmore, head of UK residential research at Knight Frank, said that the decision to extend the Help to Buy equity loan will be welcomed by house builders. 'The extended time frame of the scheme will aid the progression of larger and longer term development schemes, crucial in helping boost house building to levels that the government wants to achieve,' she explained.
She also pointed out that the take up of the scheme so far is fairly evenly spread across the country, with the most equity loans being taken out in Leeds, suggesting that it is providing broad based support to house building across England.
'The question now is whether the Chancellor will adjust the parameters or the £12.5 billion set aside for Help to Buy part 2, the mortgage guarantee, to cover the additional £6 billion cost of this four year extension to the equity loan,' she added.
According to the latest figures, nearly 15,000 properties have been bought using the Government’s Equity Loan since April last year. The new data shows that, in January, nearly 2,000 mortgages were agreed across England using the scheme, a slight slowdown compared to the final three months of 2013 when some 7,500 mortgages were agreed, an average of 2,500 per month.
Meanwhile the property indistry, including the Royal Institution of Chartered Surveryors (RICS) and the National Association of Estate Agents (NAEA) is calling for changes to Stamp Duty, stating that it will help to boost the property market.
They both point out that it is a tax that is unfair and hugely expensive and that its slab structure is actually restricting home ownership.
Some industry players believe that thresholds at the lower end of the market need particular adjustment as they clearly need bringing in line with the up to date value of property prices. One suggestion is that properties valued up to £250,000 should be changed to 0% and then a flat 2% on anything over this price. They add that although the amount raised from each property will go down overall it will even out due to the rise in transactions.
