Help to buy mortgage guarantee scheme – stop the (negative) press!
This week’s announcement that the government intends to extend the Help to Buy scheme to all residential properties worth up to £600,000 was greeted by widespread concern in the industry that prices will shoot up as a result.Under the scheme, buyers provide 5% deposit and the government essentially provides another 15% deposit by guaranteeing that proportion of the mortgage.
Detractors had two main worries. Firstly, and understandably, they were concerned that inflating demand for housing in this way would lead to a surge in prices. We’ll take a look at that a little later.
More irrationally, comments generally focused on the fact that the scheme was available to
EVERYONE – buy-to-let investors, foreigners, those not financially stable enough to be able to pay back a mortgage and those who would just prefer that the government took the risk for them.
Well – it was definitely a case of ‘never let the truth get in the way of a good story’!!!
The reality is far less exciting – the scheme is not open to buy to let investors or for second homes and lenders are being instructed to apply severely strict credit checks in order to prevent credit being given to those who cannot repay it.
The more legitimate concern is that by inflating demand, prices will rise uncontrollably. Lucian Cook, Director of Residential Research at Savills, pointed out that given the situation we are in now, this is unlikely to happen.
Speaking on Radio 4 yesterday morning, he pointed out that transaction levels are still at about 40% below where they should be, and he expected this scheme to increase them by only 15%. On the subject of prices, he agreed that Savills has revised its house price forecast upwards but expects them to rise by only 18% over 5 years – a figure not much different to the long term average.
Many critics forget that this policy is designed to stimulate supply as well as demand. If developers know more people can purchase the new homes they build, they will be more confident to begin building them.
The launch of the initial stage of the Help to Buy scheme was met by similar criticism and as a result was tarnished by a stream of negative press coverage, painting the whole industry in a bad light. Despite this, it is proving a success, with mortgage approvals increasing each month and actual sales increasing too.
The government was faced with calls to ‘do something’ to get the housing market moving, and this brave policy is proving to do just that. No policy will be perfect and there are always winners and losers.
Showing a united, positive front to the general public will make the scheme a lot more successful than presenting them with a barrage of negative press though!
