UK government declares Help to Buy scheme a success after just one month

More than 2,000 people have put in offers on homes under the UK’s flagship Help to Buy scheme, totalling £365 million of new mortgage lending, it has been announced.

The applications are backed by a decision in principle by the Royal Bank of Scotland and Lloyds, the first two participating banks, for 95% mortgages.

Ten of the 2,384 applications have already completed their house sales and Prime Minister David Cameron said that the figures show that the government backed Help to Buy scheme is supporting responsible lending.

On average households have asked to borrow around £155,000 for houses worth about £163,000, which is below the UK average price of £247,000 and more than three quarters of the applicants are first time buyers and many in their early thirties.

Cameron pointed out that this demonstrates that Help to Buy is helping ordinary people realise their home owning dreams. 'Four weeks in and it’s clear that Help to Buy is already delivering. In just one month, over 2,000 people have been accepted for a Help to Buy mortgage. Or put another way, 75 families every single day have been put on the path to owning their dream home,’ he said.

‘But the best thing about Help to Buy isn’t the statistics, it’s who is really benefiting. Most Help to Buy applicants are first time buyers, young and have a roughly average household income. This is all about helping hard working people get on the first rung of the property ladder and helping them get on in life,’ he pointed out.

‘Owning a home is about more than four walls to sleep at night. It’s about independence, self reliance, moving on and moving up. Above all, it’s about aspiration. Help to Buy is helping people realise the dream of home ownership and it’s a key part of my plan for Britain,’ he added.

Applicants will face average monthly repayments of around £900 and have an annual household income of around £45,000. This means a Help to Buy mortgage represents 24% of borrowers’ gross income, which compares to the historical Council of Mortgage Lenders’ average figure of 24% across the UK.

A two year fixed rate 95% mortgage for the average house under Help to Buy is also £2,557 cheaper per year, compared to the equivalent mortgage from 2007 and  Help to Buy has seen applications for 95% mortgages massively increase the size of the market. A 95% mortgage has been the route to ownership for most firs -time buyers over the last 30 years.

Officials said that banks have received applications from across the country with more than three quarters coming from outside London and the South East. Almost 65% of the UK mortgage market has now signed up to Help to Buy and more mortgage products from HSBC, Barclays, Santander, Virgin Money and Aldermore will be released in the coming months.

He added that the government’s Help to Buy equity loan scheme, launched earlier this year, has had an impact on house building and has allowed more than 42,000 people to buy newly built homes. Housing starts are now a third higher than at the same time last year.

But the reaction has been mixed. According to Martin Robinson, director of Hunters Property Group, an independent estate agency partnership it is probably too early to really tell what impact Help to Buy will have. ‘The news today that Help to Buy is already delivering, is not our experience as a national company so far. We have certainly seen more enquiries from first and second time buyers who haven’t got the deposit to move on, but those transactions haven’t come to fruition yet,’ he explained.

‘We have also seen an increase in enquiries from vendors about the scheme and many are taking the decision to hold off on reducing their property price, until they see the scheme in full swing. We have no doubt that the scheme will start having an impact soon, but it is still too early to really assess it properly. We think it has probably taken the market the first month to understand the full implications of it, as until recently it had remained a well kept secret,’ he pointed out.

‘The uptake figures that are being reported are not even a drop in ocean in the context of the market as a whole. The challenging factor in the property market at the moment remains in the lack of properties that are for sale. If you are now able to get a mortgage through Help to Buy, there is still a struggle finding something to buy,’ he added.

Chris Leslie, Labour’s Shadow Chief Secretary to the Treasury, commenting on the government’s update on the Help to Buy scheme, said that if the government was serious about helping first time buyers they would also be bringing forward investment to build more affordable homes.

‘Rising demand for housing must be matched with rising supply, but under this government house building is at its lowest level since the 1920s. You can’t deal with the cost of living crisis without building more homes. Unless the government acts now to ensure more affordable homes are built then soaring prices risk making it even harder and costlier for people aspiring to buy their first home,’ he explained.

‘And the Bank of England should immediately review the details of the scheme, rather than wait a year. For example, why has Chancellor George Osborne decided that a policy which should be about helping first time buyers will allow taxpayer backed mortgages for homes worth up to £600,000?,’ he added.

Dawn Carritt, director of Jackson-Stops & Staff, also believes that it may be too soon to judge the short term impact on the housing market. ‘It will undoubtedly assist those potential owners who are currently renting and find that whilst they can afford to rent and could easily transfer that monthly outgoing into a mortgage repayment, saving for a deposit at the same time is proving challenging,’ she said.

‘With the housing market in many parts of the country still at something close to 2007 levels there is reasonable chance of capital growth in the short to medium term which should reduce the risk of borrowers finding themselves in negative equity further down the line; a problem that has faced many first time buyers in particular over the past five years,’ said Carritt.

‘Although an offer of a 95% mortgage may help  buyers gain a footing on the property market and  existing owners more, it is essential the loan to income ratio is affordable.  Interest rates are at an historic low. Gone are the days when the maximum mortgage available, regardless of the amount of deposit put down, was two and half times income,’ she pointed out.

‘The trouble in the residential market has been not so much the amount of money borrowed but the ability of the borrower to service the mortgage, particularly if there is a likelihood that two incomes may at some point become one.  Monthly repayments at today’s interest rates could look very different if rates rise to the historic norm of around 8% let along the frightening rate of 15% touched upon in the 1980’s.

‘The impact of the Help to Buy scheme will undoubtedly show increased activity in the market short term but looking into the future the benefits or otherwise will only become clear as interest rates rise, as they undoubtedly will at some point, and the loan to income ratio becomes established,’ she added.

‘If the latter is reckless all the potential good the scheme could do would only fuel another roller coaster journey on the housing market ride. If the lending ratio is sensible then it looks as though the government will be backing a fairly safe bet, i.e. encouraging people to invest in a stock (in this case houses) when the market price in most sectors has not increased, even in line with inflation, for several years and the supply is unlikely to meet demand,’ she concluded.

But others are more upbeat. According to Antony Crovella, director of United House Development, it has indeed already made an impact on sales. ‘Help to Buy is available at two of our developments in Hounslow and Sidcup and we have seen a marked increase in sales since it was made available, with interest coming exclusively from first time buyers,’ he said.

He pointed out that phase two of the firm’s development at The Green in Hounslow, first time buyers using Help to Buy have made up 75% of reservations.

‘The majority of these people are young couples or families who have reasonable incomes and can meet the pay back criteria but have struggled to stump up the large deposits required to buy. Help to Buy mortgages are in strong demand and hopefully, as more high street lenders come on board, we should see these rates become more competitive than previously,’ he added.