The Help to Buy mortgage guarantee scheme, first launched by George Osborne in 2013, comes to an end this year. One of the defining housing policies of the Cameron and Osborne era, its legacy is likely to divide opinion.
Those in favour of the scheme say that it helped thousands of Brits – including many first-time buyers – get on a housing ladder that was previously off-limits to them. Help to Buy meant buyers only needed to stump up a 5% deposit on the home they were looking to buy, with the rest being covered by a 95% mortgage.
Buying your first home
The government insists many younger borrowers have been able to own their own homes as a result of the Help to Buy mortgage scheme. The average price of a Help to Buy home stands at £191,000 – which certainly counts as affordable in this day and age.
What’s more, figures suggest that 95% of the homes bought with aid from Help to Buy have taken place outside of the capital, batting off criticism that the government are too London-centric when it comes to housing.
The government, now led by new PM Theresa May and new Chancellor Philip Hammond, have opted to end the scheme because they say there is no longer any need for it, with more lenders now offering 90% and 95% mortgages. In the aftermath of the financial crisis, lenders were very wary of these types of mortgages. But now, with a steady property market and a stronger economy, that has changed.
Some, though, might argue that ending the Help to Buy scheme is one way of May and Hammond seeking to distance themselves from the Cameron and Osborne years.
The scheme has certainly not been without its fair share of critics. Those who oppose it say it has only helped a relatively small number of people – around 86,000 households have directly benefitted from the mortgage guarantee part of Help to Buy – and claim it has done nothing to help ease the housing crisis. In addition, they argue too many parts of the country have been locked out, with the government’s idea of affordable not matching the public’s at large.
With the Help to Buy mortgage guarantee scheme now ending, the question is “what next?” What are the alternatives and what are the government doing to help people onto the housing ladder for the first time?
The Help to Buy ISA
Last December, the Help to Buy ISA – another of Cameron and Osborne’s flagship policies – was launched. Since then hundreds of thousands of accounts have been opened, but there has been mounting confusion surrounding the policy and what exactly its purpose is. It’s been beset by scandals and criticism, hitting the headlines in August when the Daily Telegraph accused the scheme of misleading people.
Its main aim is to help first-time buyers raise a deposit for their first home, with a 25% government bonus for savings placed into the ISA. However, the small print suggested something different - with the bonus only paid out by the Treasury after completion, not before it. So, in other words, of no use for a deposit.
There has been criticism about the number of bonuses handed out, the lack of eligible homes for this Help to Buy scheme and question marks over how many first-time buyers it has actually aided.
All in all, the scheme has not been an unqualified success so far and still provides many more questions than answers.
Another way in which the government is trying to encourage young people onto the housing ladder comes in the form of the Lifetime ISA, another of Osborne’s flagship policies. It was, in fact, one of his last major announcements as Chancellor.
We took a more detailed look at the Lifetime ISA when it was first announced, but here’s a quick reminder. Set to be introduced in April 2017, it will be eligible for anyone aged 18 to 40. Up to £4,000 a year can be saved, with a 25% government bonus – worth up to £1,000 – received at the end of each tax year. This yearly bonus can be paid until the person in question reaches the age of 50.
Two people can both use separate Lifetime ISAs for one property, improving the chances of couples looking to purchase a home together. People can also choose to have a Help to Buy ISA and a Lifetime ISA at the same time, or transfer the money they’ve accrued from the Help to Buy ISA into their Lifetime ISA. However, the government bonus will only be paid to one of these accounts.
Money can be withdrawn from the Lifetime ISA at any time, tax-free. Savings in the Lifetime ISA are also tax-free. However, savers will be hit with penalties if they withdraw the money and spend it on non-property related goods.
Elsewhere, the government is still placing plenty of truck on its various Starter Home schemes. It was one of the Conservative Party’s key pledges at the 2015 General Election, and they’ve made plenty of noise about it ever since. Some 200,000 starter homes are set to be available for purchase over the next five years, part of the government’s ambitious target to build one million new homes by 2020.
Some have questioned how affordable these starter homes actually are – with the discounted homes capped at £450,000 in London and £250,000 across the rest of the UK – while others have pointed to the dangers of starter homes falling into the hands of investors rather than the intended target of first-time buyers.
The government has also been big on Shared Ownership in recent years – although the success of this scheme has once again been questioned on a regular basis. Furthermore, there has been plenty of activity in the Build to Rent sector of late and no signs that the government is planning to backtrack on its expansion plans for Right to Buy in England, despite the scheme being scrapped in Scotland and Wales.
The government has also made hints about taking a more left-field approach to housing by reviving the prefabricated homes boom that followed the Second World War. The homes – now known as modular homes – are modern, energy efficient and, most key of all, can be built in vast quantities at great speed.
In recent days a housing association in Warrington announced a £2.5 billion ‘flatpack homes’ deal, backed by heavy Chinese investment, with the aim of producing 25,000 solar-powered, energy efficient properties.
While prefab homes are unlikely to solve the housing issue on their own, they are one way in which the government is looking to increase its output of affordable properties. Housebuilding in the UK is still nowhere close to meeting demand, so anything to take the pressure off bricks and mortar is likely to be fully welcomed.
To put it simply, there are plenty of alternatives to Help to Buy. However, as was the case with the Help to Buy mortgage guarantee scheme, the government’s other affordable housing schemes and policies are proving divisive. It will only become clearer over time how successful they have been.