The government has announced that the Help to Buy equity loan scheme will be extended to 2020.
The scheme was launched in the 2013 budget, when George Osborne announced a £5.4 billion package of financial support to boost the housing market, which included the launch of Help to Buy.
Help to Buy comprises two initiatives to boost home ownership: an equity loan scheme and a mortgage guarantee scheme. These were designed to encourage lenders to lend to buyers with a 5% deposit.
The equity loan scheme is open to buyers of new build homes worth up to £600,000. The buyer will need to have a 5% deposit, and the government provides a loan of up to 20% of the home’s value. The buyer then has a 25% deposit to seek a mortgage from a lender for the remaining 75%. The loan is free from any loan fees for the first 5 years.
The equity loan scheme was initially set to run for 3 years from 1 April 2013, but following the government announcement, the Help to Buy scheme has assisted nearly 100,000 people, it is set to be extended to 2020.
George Osborne said that the government had committed £6 billion to extending the initiative until “at least 2020”. The first annual allocation of almost £1.5 billion for the scheme covering the 2016-17 period was also confirmed.
Stewart Baseley, executive chairman of the Home Builders Federation said: “Help to Buy Equity Loan has stimulated demand for new homes and led to a sharp rise in private house building. Extending the scheme to 2020 provides certainty of demand that allows home builders to recruit the people and invest in the land and supply chains required to support further sustained increases…” However, Andrew Sentance, an adviser to accountants PwC, is reported to have warned that: “The combined impact of low interest rates and these schemes is pushing up house prices, and taking them out of the reach of first-time buyers”.
The Queen’s Speech announced the proposed Housing Bill. This is to include both the Starter Homes Initiative, aiming to help first-time buyers under 40 years to purchase a home with a minimum 20% discount, and the proposed extension of Right to Buy to include certain housing association tenants. It will be interesting to see how these schemes work in practice, the impact on the housing market and the number of new homes that are built over the next 5 years.