Judging by the number of young faces that have been coming into my office during January it looks like the Help to Buy scheme 2 is attracting a lot of interest, with first time buyers again being able to enter the market with their traditional 5% deposit. This is good news for people wanting to get on the housing ladder, as during the darker days of 2012, the average first time buyer deposit was 20%. Unlike the 2013 help to buy scheme that only applied to new properties, this scheme allows you to buy any property you wish up to a value of £600,000, and it also allows second time buyers with limited equity to participate in the scheme. This scheme could have a greater impact on the market as it gets it moving. Whereas the first 2013 scheme often only involved first time buyers buying a new house or flat with no chain involved.
Critics have warned that Help to Buy is already pushing up house prices and could cause the next housing bubble. They claim that the increased demand for properties will push up prices and people will struggle to meet their mortgage payments when interest rates rise from their record low levels. Alternatively, it could be argued that if the market does take off and interest rates remain low, that although the 5% deposit helps that in the near future this deposit in pound terms, could be the same as the 10% deposit that people struggle with now. This development would suggest a doubling of prices in a short time span, it would also mean that relatively few people would benefit from the government initiative, as even if they have the deposit, they would not be able to afford the mortgage and therefore be locked out of the housing market. Although this is an extreme scenario, house prices did double in the two years between 1971 and 1973.
Although I feel that some areas could be overheating, I do not feel that local prices are yet at this point. So, for first time buyers with 5% deposit, who are looking to buy a home first and investment second, I believe conditions have improved significantly recently. The rates for 95% mortgages are not great but due to competition the average two-year fix rate has dropped in the last month from 5.11% to 5.01%. This is a significant reduction and hopefully the scheme will continue to fuel the mortgage market in the short term, but remember, it pays to shop around as we are finding that some lenders are offering 95% mortgages without joining the government scheme and their criteria and rates may suit some applicants better.
Kieron Bassett Financial Services has two Independent Financial Advisers who specialise in mortgages, general insurance and investment advice. Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or visit www.kieronbassett.com.
Kieron Bassett DipPFS
5th February 2014
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