This week, the government announced that the Help To Buy mortgage
guarantee scheme would be ending at the end of 2016.
What was the Help to Buy scheme?
Originally designed to help first time buyers with small deposits to buy their own home, the scheme meant that buyers only needed to put down a deposit of 5% of the value of their home, with their mortgage covering the outstanding 95%.
The scheme has helped over 86,000 households to date.
Why is the Help to Buy ending?
In a departure from David Cameron and George Osborne’s government, the new Chancellor Philip Hammond has announced that the scheme, which was introduced in 2013, will not be renewed past December 2016 as its purpose has been “successfully achieved”: effectively, that there are now enough mortgages available to those buyers with a small deposit because of confidence in the market.
Announcing the news in a letter to Mark Carney, the Bank of England governor, Hammond wrote:
‘The mortgage market has become less reliant on the scheme as confidence has returned.
‘There are now 30 lenders offering 90-95% loans outside the scheme.
‘This reflects the fact that the scheme was introduced with a specific purpose that has now been successfully achieved and, as such, I can confirm that it will close to new loans at the end of 2016 as planned.
‘I will inform participating lenders.’
What does the Help to Buy closure mean?
The end of the scheme has prompted concern from some experts, who are worried that the closure may make it even harder for first time buyers to get onto the property ladder if they are only able to find a small deposit.
While Hammond was confident that many lenders were offering 90-95% loans outside the scheme, there are worries that the number of mortgage deals available with a small deposit could fall dramatically after the end of the scheme.
However, other experts welcomed the ending of the scheme, saying that it only pushed up housing prices and made the demand for homes outweigh the supply.
Hammond himself was keen to dismiss concerns that buying a home might now be harder, saying: ‘It is important to note that the end of this particular scheme does not diminish in any way the government’s commitment to supporting those looking to get on the housing ladder.’
What are the Help to Buy alternatives for those who may have wanted to use the scheme?
The ending of this particular Help to Buy scheme doesn’t mean it’s the end of the road for first-time buyers with a small deposit.
Nick Hill, money expert at the Money Advice Service, said there were several alternatives for first time buyers hoping to get on the property ladder.
‘Even though the scheme is closing, there are a number of different schemes that you could use if you’re thinking about buying a home,’ he said.
‘For example, the Help to Buy ISA could be a helpful option. It lets you make a deposit of up to £1,200 and then put in £200 every month after that.
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‘For every £200 you put in, you’ll get £50 from the government. They’ll give you a maximum of up to £3,000 this way, so you’ll get the most benefit if you put in £12,000 altogether.
‘Depending on your situation, it might also be worth looking into one of the other Help to Buy schemes such as the equity loan, shared ownership or the London Help to Buy scheme.’