Chancellor George Osborne has described the difficulty associated with scraping together funds for a deposit as “a blow to the most human of aspirations”.
The new Help to Buy scheme is designed to help those struggling in the property market, but the initiative has sparked divided opinion, with some describing it as targeted help for households while others condemn it as the start of an unsustainable housing bubble.
What is Help to Buy?
The scheme is a mix of interest-free loans for newbuild properties and Government-guaranteed mortgages.
Help to Buy will come in two forms. The first is available immediately and will give anyone who wishes to buy a new-build property worth up to £600,000 an interest free loan to the value of 20% of the purchase price.
The purchaser must stump up a 5% deposit, and after five years interest will be payable at 1.75% and will rise in line with inflation – although the loans can be repaid at any time.
The second part of the scheme, which will be made available in January next year, will give individuals who wish to buy any property a Government-backed guarantee on 20% of the mortgage.
This should result in better mortgage deals since mortgage companies will be shouldering less of the risk of possible default.
Who is eligible?
The scheme is not limited to first-time buyers, so families looking to upsize or move to a new area to get a new mortgage deal should be able to benefit. There is also no cap on the salary you earn.
Are there any potential downsides?
As each scheme will run for three years, experts have voiced concerns that it may create a temporary bubble as buyers rush to take advantage, which could then collapse with devastating consequences.
Critics have also noted that it could hinder low-paid professionals who still won’t be able to borrow enough and will be hit by further house price rises.
“This is unlikely to help younger borrowers on lower, or even middle incomes such as teachers,” said Mick McAteer, from the Financial Inclusion Centre.