Help to Buy scheme: key questions answered

Picture: PA
Picture: PA
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THOUSANDS of families struggling to get on the housing ladder could be helped by Help to Buy schemes which have been set up in Scotland and England. The shared equity scheme in Scotland is aimed at reviving the country’s ailing housebuilding industry after the amount of new homes recently slumped to their lowest figure on record.

A similar scheme in England has generated over 12,500 sales since its introduction in April and the Scottish Government hopes the Help to Buy (Scotland) initiative will have a similar impact.

Peter Grant, chief executive of Grant Property, answers questions on the Help to Buy scheme and its effect on the UK property market.

How the scheme works

The Government-backed £12billion Help to Buy scheme addresses the core problem that has impacted the property market over the past few years; banks haven’t been lending as freely as they used to and first time buyers haven’t been able to get a foot on the property ladder due to the loan to value restrictions. This new scheme addresses these issues.

There is a housing recovery focus by the Government and I can see the logic of it; if your property is increasing in value, you feel richer and therefore spend money. Likewise, if your property is not increasing in value or has decreased, you tend to become more frugal. There is a link between housing prices and consumer spend.

Essentially, this scheme will allow first time buyers to borrow 95% of the value of their property up to a value of £600,000 (£400,000 in Scotland). As with all loans, it is based on affordability but with the benefit of much lower deposit amounts therefore unlocking the housing market to those people who couldn’t previously save 20%-30% deposit.

What is important is the fact that the Government are underwriting a proportion of the mortgage. The banks and mortgage lenders are now very cautious when it comes to lending; gone are the days when 120% mortgages are available. Slowly the banking institutions have been increasing their loan to value but they are understandably nervous about going above 80% as their security is in the deposit. As a result, the Government has agreed to underwrite the remaining 15% so if home owners default on their mortgage, the bank recoups its money. There is a safety net for the banks that didn’t exist before.

Who is eligible

In England both first time buyers and home movers so long as it’s the buyer’s only residence and they do not own another home. In Scotland, the scheme is currently slightly different and only applies to new build houses.

How it is different from current schemes

The current scheme in place in England only applies to new houses and was designed to help house builders. Now, it applies to any residential property in England. In Scotland it is just for new build houses at this moment in time.

Who stands to benefit

Everyone stands to benefit from this scheme; it’s a win, win situation. What I forecast we will see is a return to sensible housing price increases of between 5-7% per year. There is the risk that the new scheme will spark a home buying frenzy which will push property prices up by more than 7%, however you will see different tactics by the government to reduce the increase. For example, in Singapore & Hong Kong housing prices have raced ahead so much that the Government imposed a number of cooling measures. The UK Government will be closely monitoring this scheme.

Even property investors stand to gain from this scheme. The impact for them is the return to a more normal property market with a steady increase in value. Their own ROI will be greater than in recent years which is great for investors.

Where house prices rise around 7% per annum, in line with the 30 year average, on a geared investment that’s a 28% pa return. Overall, this scheme is the biggest single savings opportunity for people in the UK.

Who stands to lose out

House prices will generally rise so I don’t think anyone will lose out. It’s a win, win situation if you still apply the same principles when it comes to buying a property. After all, it remains the biggest investment anyone will ever make and the property you purchase has to be right for you both short term and long term.

What may well happen is a return to buyers having to offer over the valuation of a property to secure their dream home, as competition will increase once again for residential property. It will once again become a seller’s market so it’s crucial to buy the right property for you.

Is the scheme sustainable

I think the scheme will run for a period of time and it will have a big positive impact on the property market. When prices rise, it will be withdrawn. It will help first time buyers and that is the aim.

• Peter Grant is chief executive of Edinburgh based property management company Grant Property Management; an award winning business with approximately £0.5bn of assets under management, Grant Property employs 70 staff operating from 12 cities across the UK. The business also operates property funds for institutions and Fund Managers.

Twitter: @buytoletexpert