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Help to Buy: Mortgage guarantee figures allay bubble fears

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Just a fraction of first time buyers have used the Help to Buy mortgage guarantee scheme, allaying fears the initiative is contributing to soaring house prices.

The mortgage guarantee arm of the programme – also know as Help to Buy 2 – has accounted for less than four per cent of all first time buyer activity since its launch in October, according to Genworth Moneyfacts Mortgage Loan to Value (LTV) Tracker.

Such a low percentage should calm fears that the scheme is contributing to out-of-control increases in property prices, the financial security company said.

The number of first time buyers in the market increased by 35,000 from October 2013 to March 2014 – the first six months of Help to Buy 2 – compared to the equivalent period a year earlier. However, only 16 per cent of that increase can be attributed to the programme.

Simon Crone of Genworth said: “These figures refute the notion that Help to Buy has flooded the market and show it delivering what it set out to achieve. What the scheme is doing, as a fraction of total first time buyer activity, is offering hope to those who struggle to raise the average deposit but can still afford repayments and pass affordability checks.”

Help to Buy has also galvanised the market for 95 per cent LTV mortgages, where buyers can successfully buy a home with as little as five per cent down.

From a low base it gained almost twice as many products as any other mortgage category.

Only 54 such products existed in May 2013. One year later, 144 are available.

The total number products in the segments underpinned by Help to Buy – 85 per cent, 90 per cent and 95 per cent LTV mortgages – has grown by 147.

Crone said: “The ability to get a mortgage with a five per cent deposit makes a world of difference to buyers without the financial muscle that comes with parental support, an inheritance windfall or disproportionate sacrifice over years of scrimping and saving.”

Crone added that “responsible lending” at high LTV values plays an important role in the future of the UK housing market and called for a long-term plan to cement the future of such loans.

He concluded: “Builders will only build if people can buy, which is why prudent high LTV lending is an essential part of the picture.”

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