A recent announcement from the government has come as a major shock to those who were hoping to take advantage of the current Help to Buy scheme. The former Chancellor George Osborne created the scheme to help those who were struggling to get their foot onto the first rung of the property ladder. Now the new Chancellor, Philip Hammond, has sent a letter to the Governor of the Bank of England, confirming the support will be scrapped.
The scheme has been running since 2013, and during that time over 86,000 households have been able to purchase properties with its help. The scheme was due to end at the end of this year, but many were hoping for an extension. Now it would appear this is not going to happen.
How did the Help to Buy Scheme work?
The idea of the scheme was to allow first-time buyers to provide a deposit amounting to just 5% of the property price. The government then provided a guarantee on an additional 15%. This was designed to inspire banks and building societies to lend to those who may otherwise have struggled to get a mortgage.
Why is the scheme ending?
According to the new Chancellor, the original scheme had a “specific purpose”. The letter to the Bank of England also stated that purpose had been “successfully achieved”.
What does the future hold for those wanting to get on the property ladder for the first time?
The reason for the closure of the scheme is apparently that better deals are now available for first-time buyers than was the case in the past. However, some experts are concerned these deals may disappear when the Help to Buy scheme disappears.
Could there be a replacement?
There are other useful schemes that could potentially provide help for those still in this position. There is an interest-free equity loan scheme providing as much as 20% of the property price over five years for those buying new-build properties. The buyer must have 5% of the deposit themselves in order to qualify for this. And of course, it does not apply to any other property that has already been built.
Could first-time buyers be pushed back into troubling times?
Those saving for a deposit might find it harder to qualify for a mortgage once this scheme is withdrawn. While there are more than two-dozen lenders currently offering loans of between 90-95% on the property price, it remains to be seen whether this will still be the case in the months to come.
From now until the end of 2016, though, we could expect to see a final surge in the number of people taking advantage of the scheme before the doors finally close for good. While many people will have successfully bought their first property with the scheme’s help before this point, it is clear that some may be left behind if they cannot take advantage before we start celebrating the New Year.