How Budget Will Help Buyers Of New And Secondhand Homes

Date Published 21 March 2013



Estate agents and home builders are counting themselves among the beneficiaries of the Chancellor’s new ‘Help to Buy’ scheme.

The scheme will help not just first-time buyers of new homes, but all buyers of new homes. It will also help buyers of all homes, including secondhand stock.

The Help to Buy programme has two key components.

First is the expansion of the FirstBuy shared equity scheme for new-build properties, which kicks in on April 1 and will run for three years. It is available to any buyer of a new property that has a maximum purchase price of £600,000.

The borrower will need a 5% deposit. The Government will lend 20%. The remaining 75% will come from mortgage lenders.

While this scheme applies only to new-builds, the second part of Help to Buy kicks in next January and will be open to all buyers of both new-build and existing homes. It will also run for three years.

A mortgage guarantee scheme, it replaces and extends the NewBuy scheme where currently the mortgage guarantee is co-funded jointly by the Government and developers. Under Help to Buy, the mortgage indemnity will be provided solely by the Government.

Borrowers will need a 5% to 20% deposit, meaning they will be able to borrow up to a 95% LTV mortgage. The Government guarantee will cover the remaining amount above 80% LTV. The maximum purchase price will again by £600,000.

The Treasury has produced some useful illustrations on how the scheme works. See the link at the end of the story.

News of the extension of the mortgage indemnity scheme to existing housing stock from next year was greeted with enthusiasm by Paul Smith, CEO of Spicerhaart.

He said: `It was good to see that the Chancellor has been listening to the concerns of house buyers and through the Help to Buy scheme is offering some much-needed financial support.

`In a clear homage to Margaret Thatcher’s Right to Buy scheme of the 1980s, the Government will provide billions in guarantees to support anyone struggling to either get on the property ladder, or move up the property ladder, for that matter.

`The fact that such a scheme is not limited to just new-builds for first-time buyers but buyers as whole has to be warmly welcomed as this opens up the scope of the scheme to so many more people than previous initiatives, and with it, the potential to build on the green shoots of recovery that we’ve been seeing in the UK housing market in recent months.`

Rightmove said that the £600,000 limit meant that buyers and sellers of nine out of ten properties on the market –97% of new build stock and 93% of secondhand homes – could benefit from the scheme.

Agent Alan Robinson, of the Robinson Jackson Group, in south east London and Kent, said that Help to Buy should prove a winner. He said: `We have been crying out for help, and the Chancellor has finally delivered some good news. The idea that loans from high street lenders will be underwritten by the Govenment for three years should encourage them to lend to buyers with smaller deposits and adjust interest rates to be more affordable.

`This £130bn underwriting package, that comes into effect at the start of 2014, should open the floodgates for buyers currently priced out of the mortgage market.`

However, Jon Hall, CEO of Saffron Building Society, was more guarded. He warned: `At the heart of the problem is a lack of housing at the right price, and it’s questionable whether these initiatives tackle this head on or add further potential distortion into the mortgage market.`