The Help to Buy mortgage guarantee scheme, one of the flagship policies of the David Cameron and George Osborne era, is set to close at the end of this year, the new Chancellor Philip Hammond has announced.
It is the latest in a series of moves carried out by Theresa May’s government to distance itself from the previous regime.
The mortgage guarantee scheme, launched by Osborne in his 2013 Autumn Statement, meant that buyers only needed a 5% deposit on the value of the home they were looking to purchase, with a mortgage covering the remaining 95%. At the time, Osborne described it as a 'landmark' scheme that would help thousands of Britons on to the housing ladder.
It has proved controversial, with some questioning its usefulness and effectiveness in achieving its aim of helping to ease the housing crisis. The Treasury, in an attempt to deflect criticism and defend the policy, released figures which showed that more than 86,000 households have been supported by the scheme, with a total of 185,000 homes purchased across all of the government’s Help to Buy initiatives. This includes more than 150,000 first-time buyers.
With confidence returning to the market and a sturdier economy, the government says the scheme is no longer needed because “more private lenders are offering 90% to 95% mortgages”.
Critics have pointed out that the number of people who have benefitted from the scheme is a drop in the ocean, with many parts of the country locked out.
The government, as expected, thinks differently. In his letter to Mark Carney, Governor of the Bank of England, Hammond said the scheme had been “introduced with a specific purpose that has now been successfully achieved”.
He said that dropping the scheme was unlikely to have a negative effect on those Britons currently hunting for a mortgage, because of the current market conditions and eagerness of lenders to lend. Favourable mortgage rates are currently making it easier than ever for buyers to acquire a good mortgage deal, assuming they have the required deposit to begin with.
Hammond did, however, add a caveat to his letter to Mark Carney. “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,” he said.
Ministers have been at pains to point out that the government is still doing plenty to help people onto the housing ladder for the first time, with Help to Buy ISAs and shared ownership schemes still going strong.
These initiatives, though, have also been questioned, with some labelling them gimmicky and ineffective. The Help to Buy ISA, in particular, has encountered plenty of problems of its own, with question marks about what the initiative is actually for.
More than 650,000 accounts have been opened since George Osborne launched the Help to Buy ISA last December, but the small print of the scheme has come in for criticism and it’s not been clear how many buyers have actually been aided by the scheme. As of now, only a very small number have received the bonuses that the ISA provides.
Critics say the Help to Buy scheme did nothing to help solve the country’s housing crisis – which is a direct result of supply failing to keep up with rising demand. Instead, it made the issue worse by upping prices through cheap credit while in no way addressing the housing shortage.
Supporters, however, point out that Help to Buy has helped people onto the property ladder who might otherwise not have managed it, in particular younger borrowers and first-time buyers. They say the average price of a property purchased with support from Help to Buy schemes is £191,000 – which could definitely be counted as affordable – and 95% of these purchases have been made outside the capital.
While it would be churlish to suggest that the Help to Buy scheme has had no impact – many first-timers have clearly been beneficiaries – its success, across six years, has been limited. It has been beset by controversy and question marks and, as one of David Cameron’s flagship policies, hasn’t exactly had the lasting legacy that the former PM might have hoped. It’s certainly telling that the scheme has been shelved so quickly into May’s premiership.
Hammond says the scheme was always set to go at the end of this year, but that seems far too convenient. Help to Buy has always been a divisive policy, and it will continue to divide opinion as the years go by – which isn’t exactly the most glowing endorsement.