The Prime Minister David Cameron has moved to address fears about a potential housing bubble, arguing that recent statistics indicate that it has been a ‘success’.
Making a statement on Monday morning, Mr Cameron pointed to the thousands of new users of the scheme as clear evidence that it was having its intended impact on the property landscape.
According to government data, over 2000 people had successfully utilised the mortgage guarantee scheme to secure their desired property, with it already accounting for over £365 million worth of mortgage borrowing. Of these people, a sizeable 75% were first time buyers of property, whilst a large proportion was only entering their 30’s.
Furthermore, consumers are only borrowing £155,000 on average for their mortgages, which is markedly less than the country’s average of £247,000.
Help to Buy was first implemented earlier on this year and consists of a two pronged approach to restore consumer confidence in the housing market.
The Equity Loan Scheme allows new buyers to borrow up to 20% of a new build home, interest free for 5 years. They will then need to pay a 5% deposit to purchase the house and will still need to find a mortgage lender to cover the other 75% of the property costs.
The Mortgage Guarantee Scheme enables house buyers to only pay a 5% deposit on any property up to the value of £600,000. They are then able to obtain a mortgage from any lenders signed up to the scheme of up to 95% of the property’s total value. Furthermore, the government will then guarantee the mortgages for anyone who is borrowing over 80% of the house value in case they fall into tough financial times. This is to give providers a form of insurance for offering such high loan to value mortgages. However, over 75% of the mortgage applications had been received in areas outside of London and the South East of England, re-sparking fears that the scheme is having more of a damaging than positive effect in these areas. This is because the prices of property in these areas are already far higher than the UK average, meaning that consumers in the South are in risk of facing increasingly unaffordable property prices.
Mr Cameron has denied that this will become a reality, and argued that the widespread benefits are already being displayed after only 4 weeks.
“Four weeks in and it’s clear that Help to Buy is already delivering,” he said in a statement.
“Seventy-five families every single day have been put on the path to owning their dream home. But the best thing about Help to Buy isn’t the statistics – it’s who is really benefiting.”
“Most Help to Buy applicants are first-time buyers, young and have a roughly average household income.”
Mr Cameron also indicated that the scheme would expand in the upcoming months, citing that new mortgage products would be made available through the winter.
So far, almost two thirds of the country’s mortgage lenders have already signed up for the scheme, and the Prime Minister identified that HSBC, Santander and Virgin Money would all be making new mortgage products available.
The scheme is set to be in place for three years, in which time it is hoped that the property market recovers from the damage done to it after the economic crisis of 2007.
And despite worries about the artificial inflation of house, the government has empowered The Bank of England to intervene if anything potentially harmful seems likely in the future.
However, last week the Commons Treasury committee demanded that the organisation specified the nature of intervention in cases such as these, due to the lack of clarification about the procedure that currently exists.