We look at the pros of help-to-buy schemes

We look at the pros of help-to-buy schemes

The help-to-buy scheme may have raised doubts about how much it would actually help home buyers when it was introduced in April 2013, but recent data reveal has revealed that the initiative has gone some way towards achieving its intended goals. Since its introduction, it has contributed significantly to first-time home buyer purchases and provided a much-needed boost to housing development.

What is Help-to-Buy?

The scheme provides first-time buyers with a loan equal to 20% of the deposit required to purchase a property, on the condition that the buyer contributes 5% of the deposit and that the home they intend to purchase is worth less than £600,000.

That's the first part of the scheme. It's the second part that was criticised, specifically the provision of mortgage loans of 80% to 95% of the property's value. The upside is that this reduces the risk for mortgage lenders and encourages them to offer a wider range of mortgages, but housing analysts fear that this will increase demand and create a housing bubble, leading to a repeat of the 2007 financial crisis.

Data Suggests the Benefits Outweigh The Risks

The figures show that over 4,000 households purchased properties in June 2014 with the scheme’s assistance. At the time, it was the highest monthly total since the scheme was introduced. There were 4,300 completions during the month, with over 27,100 homes bought through the scheme. Furthermore, 83% of sales under the scheme were to first-time home buyers – the intended target audience.

Data released in January 2015 by the Department of Communities and Local Government (DCLG) reveals that £1.1bn of loans had been offered in support of purchases amounting to £5.65bn. Over two thirds of buyers went for the 95% mortgage option and a third of sales were in the £150,001 to £200,000 price bracket. The average purchase price for a property under the scheme was £211,566.

Statistics also suggest that it's not just people in London who are benefiting from the scheme; as the top six local authorities in terms of completed sales were Wiltshire, Leeds, Central Bedfordshire, Milton keynes, Peterborough and Birmingham.

Another goal of the scheme was to provide a boost to the construction industry, as housing developers would be more willing to undertake new projects thanks to the mortgage guarantee on new-build homes. According to housing minister Brandon Lewis, private house building has increased by a third since the scheme was introduced. Stewart Baseley, executive chairman of the Home Builders Federation, claims that the last year has since the highest increase in new housing starts in around 40 years.

The increase in housing developments means there will be more homes available to meet the rising demand, as well as a boost to job creation in the construction industry. This bodes well for the future of the UK property market, and suggests that Help-to-Buy has so far achieved exactly what the name of the scheme implies.

photo credit: green for sale sign via photopin (license)

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