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BLOG: The devil is in the Help to Buy detail

Martin Wade
Written By:
Martin Wade

With Help to Buy, the government has set the clock ticking with no idea as to whether or not a bomb is attached, writes Martin Wade of Your Mortgage Decisions.

The new Help to Buy scheme for January 2014 has got pulses racing with equal measure of excitement and trepidation.

George Osborne had barely finished congratulating himself on his pre-election master-stroke before Mervyn King’s stinging departure shot about the risks of over-extending the scheme. The government has apparently set the clock ticking with no idea as to whether or not a bomb is attached.

The housing market could be blown wide open by the new scheme as it is not only available to first-time buyers but to homeowners as well. Nor is the scheme exclusive to new-builds. All residential properties qualify as long as they are priced at £600,000 or less. Landlords however are excluded from the scheme.

Nevertheless, some economists fear that this catch nearly all approach will result in a false economy. A great big housing shaped bubble, subsidised by the Great British tax-payer. Experts at Savills have already hiked their forecasts for property price increases over the next five years from 11.5% to 18.1% by 2018. They site Help to Buy as a key force behind the rise.

Awareness of the scheme is growing rapidly too as developers pin huge billboards outside any property that could qualify for Help to Buy. News coverage has been extensive, with controversy about the scheme’s future only intensifying the intentions of potential buyers not to miss out.

So how many people will apply? Lots in my opinion. When you consider that tens of thousands of people are currently “mortgage prisoners”, stuck with unattractive deals because they cannot meet lending criteria to remortgage or move home, you can imagine the interest that this scheme is fuelling. Everyone is asking if they might benefit from Help to Buy.

The question people really need to ask themselves is where will Help to Buy land them in five years time? Property prices are likely to rise and that can provide for a healthy amount of equity.

However the spike in the cost of borrowing for those who take advantage of the government’s 20% loan might leave many people over-stretched. This could make it difficult for the Bank of England to raise interest rates if homeowners are already pushed to their limits.

The government may well not have given due consideration to the consequences of extending Help to Buy but many believe the bold move will have a positive impact on the economy.

Owning a home remains a major aspiration for most and the housing market is a major indicator of the health of the economy overall. Of course the devil will be in the detail.

The government’s own website is tantalisingly sparse on the subject of Help to Buy, ending with the words, “You can’t apply yet. More information will be available later in 2013.”

In the same vein, we can’t know the impact that Help to Buy will have on the economy yet, but we are sure to find out later in 2014.

Martin Wade is director of Your Mortgage Decisions.