Is Help to Buy just Pie in the Sky?
This year’s conference season has certainly been one for revelations. The LibDems will 'demand' a Mansion Tax, Labour will freeze energy prices and now the Tories are waving about their Help to Buy scheme (and clamping down on unemployment benefits) in an attempt to trump their rivals.
While many have poured scorn on Ed’s plans for energy bills, including Centrica threatening to leave the country in a particularly hissy fit, the surge of popularity for Labour in the polls has clearly got the Conservatives rattled. They have decided that the young up-and-coming, and the country’s ‘hard workers’ are their target (they clearly don’t expect the long-term unemployed are capable of voting) and have launched the second phase of their Help to Buy scheme early to much (Conservative Party) fanfare.
So what is the scheme?
Part one of the scheme was aimed at helping people buy new homes, both to get more people ‘on the ladder’ but also to stimulate the house building market. This second phase applies to any house (up to £600,000) but instead of the homebuyer having to find a weighty deposit, lenders will only ask for 5%, but will get a guarantee from the Government over another (up to) 15%. The scheme was originally due for launch on 1 January 2014 and although it has now been opened to applications early, to coincidentally tie-in with other Party's announcements, you still won’t actually be able to actually get a Help to Buy mortgage until January 2014.
So is it a good scheme?
Well, details are still sketchy. Other than the basic idea, the Government have so far not come up with any numbers. This means that lenders do not know how much this 15% guarantee will cost them, which means they cannot work out what retail deals they can offer to customers. Safe to say though, that the additional cost of the guarantee will be incorporated in the rates/product fees. This is why, so far, only Governmental buddies Lloyds bank and RBS have so far committed to the scheme- what business in its right mind would agree to offer a service before they knew how much it cost to offer it?
But even if the deals will cost consumers a pretty penny, surely an expensive 5% deposit deal is better than a cheaper 20% deposit rate, if you would never be able to afford the deposit? George said he didn’t want home ownership to become the privy of those with parents rich enough to fund the deposit.
However, critics of the scheme fear it will ignite a new property bubble, especially in the South East, where house prices are already rising- George has absolved himself of responsibility for this by making the Bank of England in charge of seeing whether there is an adverse inflationary effect on house prices.
The level of subsidy is also being queried- given the average house price in England and Wales (there is a separate Help to Buy scheme for Scotland) is £164,654, those not heirs to million-pound fortunes might wonder why first-time buyers would need to purchase a £600,000 house. Even in the capital, the average price is a mere £389,066, and many might surmise that those able to afford to service a £600,000 mortgage, are probably not desperately in need of Government assistance.
In any case, until more financial details emerge, the scheme is little more than a headline which may or may not incline people towards the Conservatives in time for 2015.