Brian Murphy, head of lending at Mortgage Advice Bureau explores the housing policies that can be expected from the new Government, and how these will affect consumers looking to climb the property ladder.
1) Continuation of Help to Buy until 2020
“The biggest boon for first-time buyers will be the continued support of Help to Buy. In its first two years, the equity loan scheme has helped 47,018 people to buy a home with just a 5% deposit.
The Help to Buy scheme has been instrumental in improving access to new build properties through the availability of government equity loans, helping buyers overcome the pressure of realising a deposit.
The scheme also provides an incentive for housebuilders to keep producing new homes by guaranteeing demand. This will prove crucial over the next few years, as the imbalance between supply and demand means housing recovery is being built on shaky foundations.
The fate of the Help to Buy mortgage guarantee scheme is still undecided: it is currently set to end in December 2016. Greater clarity on whether this scheme will reach its natural end or also be extended will be needed in the coming months.”
2) 200,000 new Starter Homes
“The Starter Home Scheme was promised by David Cameron to appeal directly to first-time buyers: it will provide 200,000 new homes at a 20% discount (although buyers would have to repay this advantage if they sold within five years).
The scheme is beneficial in that it is specifically designed to encourage construction on brownfield sites, which are largely disused. Housebuilders taking part in the scheme will not have to pay the usual fees to local authorities: an added incentive for the construction industry.
However, there has been no mention of maximum loan-to-values (LTVs): for this scheme to be successful or even to compete with Help to Buy, 95% mortgage lending must be available. There may also be additional restrictions on top of the 40 year age cap.
Unfortunately, an injection of 200,000 new homes is a drop in the ocean compared to the number of new properties that we need. The estimate is that we have to build 250,000 new homes per year just to keep up with demand and avoid excessive house price inflation. For the 200,000 first-time buyers who take advantage of this scheme, it’s a great policy – but if the imbalance between supply and demand is not properly addressed, there will be many more struggling to access the property ladder.”
3) Right to Buy
“The Conservative Party announced in their 2015 election manifesto their intention to extend the Right to Buy scheme to social housing tenants. This will provide a more affordable route to homeownership for social housing tenants.
This policy will also require that councils sell their most valuable 210,000 properties from their remaining housing stock. However, as yet there isn’t a dedicated plan in place to replace these properties. This will mean a shortage of social housing for tenants that can’t afford to buy and greater pressure on the current housing shortage.”
4) Help to Buy ISA
“The Help to Buy ISA is a crowd-pleasing move and will further improve accessibility to the housing market for first-time buyers. The purchase limit of £250,000 (or £450,000) outside of London is sensible, as the £600,000 Help to Buy cap has proved unnecessary for the vast majority of homebuyers.
Saving for a deposit is often the biggest barrier to becoming a homeowner, so having a product that makes this process easier is undoubtedly a big plus for potential buyers. However, the different rules and timescales of the Help to Buy ISA, mortgage guarantee and equity loan schemes could cause confusion. Clear and effective communication will be needed to ensure as many first-time buyers benefit from this scheme as possible.”
What should current homeowners and potential buyers do now?
“For those who already have a foot on the property ladder, these policies won’t be of much interest. However, that doesn’t mean existing homeowners should be complacent, particularly if they own their home with a mortgage. Consumers continue to benefit from record low mortgage rates, and the stamp duty reform implemented in December 2014 has helped to make climbing the property ladder even more affordable. After a slow start to 2015, mortgage lending has picked up considerably, and lenders have a strong appetite for business.
However, these preferential conditions won’t be around forever. Homeowners who haven’t reviewed their mortgage deal recently should do so as soon as possible: switching could save hundreds of pounds each month, particularly when moving from a standard variable rate (SVR). Locking into a fixed-term rate could be the best option for homeowners that want to protect themselves against any future rate rises.
For those who have not yet joined the housing ladder but think they may be in a position to do so, speaking to a mortgage expert is the best way of deciding what route to home ownership is best – and whether it’s worth waiting for some of the new Government policies to materialise before making a move.”
