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Without high LTVs, new build will ‘grind to a halt’ post Help to Buy – Philips

by: John Philips, operations director at Just Mortgages and Spicerhaart
  • 21/01/2019
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Without high LTVs, new build will ‘grind to a halt’ post Help to Buy – Philips
In an attempt to help more young people onto the housing ladder in April 2013 the government launched its Help to Buy loan.


For many, the scheme was too good to be true so, it is perhaps no surprise that between the scheme’s launch and its fifth birthday in March last 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?


More harm than good?

Critics of Help to Buy say it has inflated house prices with many concerned that the scheme has done more harm than good.

It has been nicknamed the ‘Help to Sell Scheme’ by some as the increasing demand seems to benefit existing homeowners and property developers, rather than the buyer themselves.

There are also fears that when it is withdrawn, any rise that has taken place will be undermined, with potentially disastrous results.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.


Lenders won’t lend 95% LTV

But, it cannot go on indefinitely; it has already been extended until 2020 and the government can’t just keep on giving away money.

And while the government has pledged to build 300,000 new homes every year, we are more than likely in a situation where first-time buyers can’t actually afford them.

Help to Buy has also encouraged lenders to offer higher 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.


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