The Help to Buy scheme was initially introduced in April 2013 and was comprised of 2 parts: an equity loan and a mortgage guarantee scheme. The 2 schemes were supposed to end in December 2016 however the government decided to extend the equity loan until 2020. Four years from the introduction of the equity loan we are able to review whether it achieved its objectives.
Key objectives of the Equity Loan:
- Stimulate the housebuilding market – the government wanted to encourage the building of new properties to combat the national housing shortage.
- Increase supply of low-deposit mortgages – more affordable mortgages were needed for first time buyers and to encourage access to the housing market.
- Build up confidence of lenders – aimed to give lenders more security so that they would be more willing to offer attractive mortgage rates.
- Encourage ownership instead of renting – prevent landlords purchasing houses for a more competitive price as a buy to let investment
How the scheme attempted to achieve these objectives:
- Loan is only available on the purchase of new build properties.
- Government lends up to 20% of the purchase price and interest is not payable for the first five years. After this period the interest rates are relatively low.
- With 20% equity loan and 5% deposit the purchaser will have 25% ownership. Therefore mortgage conditions will be kinder and more financially viable.
- As mortgage conditions become financially viable for more of the population access to the housing market expands.
- Not available when purchasing a property for buy to let purposes.
In the past year the government has boasted about the success of the equity loan scheme declaring that between April 2013 and April 2016 the scheme was used to purchase 76,559 homes outside of London. This is equivalent to 30% of the 255,960 privately new built properties completed in that period. An evaluation by the Department for Communities and Local Government stated that the help to buy equity loan generated 43% additional new homes built before January 2015.
The scheme has also had an impact in our local area most notably in South Norfolk where 738 loans were taken out amounting to 12.8 loans per 1,000 homes. South Norfolk was listed as 11 out of 325 local authority areas in England for the rate of loans per household. North Norfolk had 57 loans taken out and in Kings Lynn and West Norfolk 156 loans were taken out.
The results demonstrate how the equity loan did encourage more houses to be built nationally, however this is not the most important objective achieved. More importantly the scheme made the housing market more accessible for first time buyers and gave the lenders confidence to give mortgage offers financially viable for more of the population.
At Clapham & Collinge, our property experts are here to guide you through the processes involved, for a free no obligation quotation, contact us today on 01603 693500 or email us using 'Make an enquiry' form. Appointments available at our Norwich, North Walsham, Sheringham and Brooke offices.