The data from the Treasury also shows that the majority of houses were at the lower end of the price range with the mean value of property purchased with the mortgage guarantee part of the scheme at £151,597 compared to a national average house price of £252,000 in the first six months since it was launched.
Overall 7,313 mortgages were completed with the support of the scheme and of these, 80% were to first time buyers. The data also shows that the scheme is supporting a higher proportion of mortgages in the North West and the East, and a lower proportion in London and the South East.
The governor of the Bank of England, Mark Carney, has been among those voicing concerns about the Help to Buy schemes and there have been calls for the upper limit of the scheme to be reduced from £600,000 to say, £300,000. But the figures shows that 93% of the loans were for properties costing £250,000 or less.
The government says that Help to Buy is also helping to increase housing supply, with the scheme driving demand for new build homes. Some 74% of the homes bought through Help to Buy are new build properties and private house building is up 34% since the launch of Help to Buy.
Leading builders credit the scheme for reinvigorating the house building industry and boosting housing supply. ‘After a number of years when house building levels fell to a record low level, all indicators show supply is now increasing rapidly. The Help to Buy Equity Loan scheme is supporting demand for new build homes and if buyers can buy, builders can build,’ said Home Builders Federation executive chairman Stewart Baseley.
‘Its extension provides certainty about longer term demand that will allow the industry to plan ahead, rebuild capacity lost in the downturn and ultimately deliver sustainable increases in supply. This is providing desperately needed homes and also creating tens of thousands of jobs on sites across the country and in the supply chain,’ he added.
According to the Council of Mortgage Lenders the combined impact of both the Help to Buy equity loan and mortgage guarantee schemes does not appear to be creating an amplifying effect on the more active parts of the UK housing market.
It explained that the impact of Help to Buy varies considerably on a regional basis. For example, the active London market accounted for 13% of all loans for house purchase between April 2013 and March 2014. However, London accounted for only 6% of all Help to Buy equity loan and mortgage guarantee transactions.
By value, 45% of properties bought involving a Help to Buy mortgage guarantee were for properties costing up to £125,000. Only 7% of Help to Buy transactions were for properties costing over £250,000.
‘Broadly, we should be reassured by the latest data on Help to Buy. The policy appears to be reaching the geographical parts of the market where recovery has been weakest, while accounting for only a small proportion of business in those areas where the market is more active,’ said CML director general Paul Smee.
‘On the basis of these figures, the scheme appears to be successfully reaching its target group of creditworthy borrowers who would otherwise be unable to buy until they had accumulated a more significant deposit. Lenders are always mindful of what their customers can afford,’ he pointed out.
‘Throughout the UK, the proportion of business accounted for by Help to Buy has to date been modest overall. Any worry that the scheme risks stoking a housing boom fortunately does not seem to be playing out in practice so far,’ he added.
According to Susan Emmett, director of residential research at Savills, said that given that 45% of all Help to Buy mortgage guarantee deals were for properties costing less than £125,000, the scheme had far higher impact in Scotland and the north of England than in London and the South East.
Gráinne Gilmore, head of UK residential research at Knight Frank, pointed out that overall, the scheme still represents a tiny portion of the market and is clearly more effective in parts of the country where house prices are recovering more slowly.
‘The take up rate for the Help to Buy mortgage guarantee suggests that fears that it is stoking house prices have so far been misplaced. House prices have been underpinned by rising demand amid limited supply, and the Help to Buy mortgage guarantee is at this stage only a side show to this fundamental problem,’ she said.
‘The mortgage guarantee was designed to improve access to the mortgage market for those with smaller deposits, but by the time the scheme was introduced, the choice of high Loan to Value loans had already increased considerably, helped by the government’s own Funding for Lending scheme,’ she explained.
‘The idea of the mortgage guarantee, that the government would help potential buyers of existing as well as new build homes, has probably had a bigger effect on the market than the actual scheme. It will be interesting to see how the take up increases over the coming months, as the data suggests a steady increase in buyers being given a leg up onto the housing ladder between October and March.
The figures provide clear evidence that the scheme is not fuelling a price bubble in London and the south east, according to Simon Crone, vice president for mortgage insurance in Europe for investment firm Genworth. ‘The data provides clear evidence that Help to Buy mortgage guarantee is not the bubble inflating agent some have feared. On a modest scale that is a mere fraction, 1.3%, of total completions. The scheme has taken cautious steps towards returning us to a more inclusive market for first time buyers,’ he said.
‘Supply problems aren't limited to house building, and Help to Buy mortgage guarantee was needed to end the drought of lending to people with limited deposit funds who can otherwise afford a mortgage. It's made a world of difference to the carefully screened borrowers who have used it to buy modestly priced homes, and would otherwise be resigned to renting or living with their parents without this option,’ he explained.
‘It was once the norm to start out with a deposit of 5% or 10% on your first home. The fact that deposits average closer to 20% in 2014 is one of the reasons why buying in your 20s and 30s has become, for many, a goal their parents achieved which they have little chance of emulating,’ he added.
‘There is a long term need to support first time buyers with a mortgage guarantee, with the best solution being one that does not rely on taxpayer funds. Demand can be prudently managed by lenders and private insurers operating under the new mortgage rules, which ensure a tight grip on affordability. Having addressed concerns over the scheme stoking a bubble, the Treasury urgently needs to look ahead and set out a viable exit strategy that doesn’t put first time buyers back to square one,’ he concluded.
It has been a lifeline for first time buyers in London, according to James Hall, director of London estate agent Fishneedwater. ‘A significant 89% of the scheme’s users in London were first time buyers. In a market where a property up to £600,000 is considered suitable for a first time buyer, the mortgage scheme has been a lifeline to many who only dreamed of stepping onto the property ladder,’ he pointed out.
‘Stimulating demand in the capital, however, will only go so far, and it is now high time the government prioritise their house building efforts to ensure the property market remains healthy,’ he added.
What both phases of Help to Buy have impacted on is market sentiment, especially with first time buyers, according to Stuart Law, chief executive officer of property investment firm Assetz. ‘For all the rhetoric only 7,313 homes have been sold under the mortgage guarantee scheme in its first six months and when we look at this in the context of the 100,000 sales transactions that take place every single month we are not looking at a significant market impact,’ he explained.
He called for the government to make local authorities realise that more land is needed for new home building and loosening up of planning laws would building easier and quicker.
