Help to buy - bust or boom?

By Paul Engelbrecht, property solicitor, Hughes Paddison Cheltenham advises that the government announced a package of  financial support to tackle long term problems in the housing market by the introduction of the help to buy equity loan and mortgage guarantee schemes.

These schemes have been brought forward three months to give the property market a shot in the arm and assist buyers in getting on the property market. Is this a short term blessing or a curse? 

The scheme is available for three years and will not be restricted to those buying new residential properties: those seeking to buy an existing property will also be eligible.

The intention of this scheme is that lenders will be incentivised to offer a greater number of mortgages to home buyers with small deposits.  However, do note that lenders will not be obliged to offer applicants a guaranteed mortgage. The scheme will only be available to buyers with deposits between five per cent and 20 per cent and, as with the equity loan scheme, the value of the property that they are seeking to purchase must not exceed £600,000. Lenders will set the interest rates. The government won’t be involved in this. The government will not guarantee mortgage payments.  Instead, the government will provide lenders with the option to purchase a guarantee on the high loan-to-value portion of the mortgage, for which it will charge a commercial fee.

If a borrower’s property is repossessed, the government will cover some of the losses suffered by lenders. 

My personal view is that whilst this scheme will give the property market a timely incentive, we are starting to head in the right direction as it is and will we not be leading ourselves into a false sense of security because when this funding ends, what will happen to the prices? 

At the moment, mortgage applications are at a new high and most banks are struggling to keep up with the amount of applications.  By introducing more complicated applications, are they not broadening the parameters to allow unsuitable mortgages into the market leading us into the same situation we were in 2007?

Time will tell ......

For help please contact Paul Engelbrecht on 01242 574244 or pe@hughes-paddison.co.uk.