Available on new-build homes only, the idea is simple – the government lends buyers up to 20% of the cost of the home, the buyer then only needs a 5% cash deposit and a 75% mortgage to make up the rest.
The government part of the loan – the 20% – is interest-free for the first five years. In the sixth year, interest is due, initially at a rate of 1.75%.
For many, the scheme was too good to be true.
It is perhaps no surprise that between the scheme’s launch in April 2013 and its fifth birthday in March this year, almost 169,102 properties were purchased using a Help to Buy loan.
But, while Help to Buy has undoubtedly been a huge help to a generation, have we become too dependent on it?
House prices increased
Critics of Help to Buy say it has inflated house prices, with many concerned the scheme has done more harm than good.
Nicknamed the ‘Help to Sell’ scheme by some, the increasing demand seems to benefit existing homeowners, and property developers, rather than the buyer themselves.
There are also fears that when the initiative is withdrawn, any rise that has taken place will be undermined with potentially disastrous results.
And there is also the risk that the housing market will become dependent on the underwriting by government, again, putting taxpayers at risk and making it very difficult politically to shut the scheme down.
Must end eventually
But, it cannot go on indefinitely; it has already been extended until 2020 and the government can’t just keep on giving away money.
While the government has pledged to build 300,000 new homes every year, we are more than ever in a situation where first-time buyers can’t actually afford them.
Help to Buy has also encouraged lenders to offer higher loan to value (LTV) ratios, with the number of products available at 95% more than doubling since the scheme began.
But once the scheme ends, lenders won’t be prepared to accept deposits as low as 5% on new builds because of the risk.
Much like a brand new car that loses value as soon as it is driven off the forecourt, new build homes fall in value as soon as the property is purchased, making most lenders highly reluctant to offer 95% LTVs on them.
But unless lenders start to offer higher LTVs on new builds now, as soon as the Help to Buy scheme does end, there is a very real risk that the new build sector will grind to a halt.