Help to Buy Scheme tinkering

Posted by Sharon Yewen in Mortgages on 25 July 2013 - Sharon is Financial Controller at checkmyfile.

George Osborne has just announced that the second stage of the Help to Buy scheme will be closed to second home buyers, as well as foreign buyers with no history of owning a property in the UK and buy to let landlords.

There is to be a meeting involving house builders and mortgage lenders to discuss the detail of the scheme.

Phase 1 was introduced 4 months ago and provides equity loans for buyers, both first-time and house movers, of new build homes up to a value of £600k. From January 2014 it is proposed that the scheme is extended to help buyers of existing homes. A minimum 5% deposit will be required and the government will guarantee a proportion of the loan in order to give more confidence to lenders.

Recent figures from the British Bankers Association do indeed show that the number of mortgage approvals has risen to 37,278 in June from 36,290 in May. There are fears over the next phase of the scheme though.

The former governor of the Bank of England, Sir Mervyn King, says the scheme should not be extended.

The Building Societies Association and the Council of Mortgage Lenders (CML) have called for the government to outline a clear exit strategy for the end of the three-year scheme.

The CML also wants to see the government focus on projects to stimulate the building of homes - so as not to create demand without supply.

This is echoed by the Institute of Directors (IoD). Graeme Leach of the IoD says, "The housing market needs help to supply, not help to buy and the extension of this scheme is very dangerous. Government guarantees will not increase the supply of homes, but they will drive up prices at a time when it seems likely that house prices are already over-valued."

“When the scheme is withdrawn any rise in prices that has taken place will be undermined, with potentially disastrous results. There is a real risk that the housing market will become dependent on the underwriting by government, making it very difficult politically to shut the scheme down. This should be of great concern.”

For his part, the Chancellor is expected to tell lenders to apply stringent testing to borrowers to check they can afford repayments, there will be income checks and “stress testing” and a declaration will have to be signed confirming that the loan is not for a second home. Also people with blemishes on their credit files will be barred from the £12bn scheme.

Sharon Yewen is Financial Controller at Checkmyfile. She is an FCA and has a degree in accountancy from the University of Exeter. You can contact Sharon at

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