The new help to buy scheme is due to launch next year and it’s not without its critics.
The scheme will allow buyers with a deposit of 5% to buy a house more easily – the government will under-write the risk of lending to buyers with less equity.
Raising a deposit is a house buyer’s nightmare, as few can save 10% of a house price along with stamp duty fees and solicitors costs. Help to buy hopes to give an answer to this problem. But the scheme is widely criticised.
The most widely held belief is that the scheme will push property prices higher and be a danger to the economy.
Personally, I think the critics are mistaken.
House prices are rising anyway – demand outweighs supply.
To address this, the government could build more houses, although on a crowded island with green belts and planning restrictions, this is much easier said than done. Another way of addressing the problem would be to curtail demand – hence, the help to buy scheme should not be available.
However, even if the help to buy scheme didn’t come in fruition, house prices will still rise. House prices in England have been rising steadily since 2007 and show no signs of slowing. The rise in prices is largely due to a number of buy – to – let investors. The sector is booming, with mortgage rates low and rental rates high.
Meanwhile, potential first times buyers are denied a mortgage, forcing them to rent. As rents increase, it becomes even harder to save for a deposit – so it’s a vicious circle.
If the government capped rates of rent, investors might stop piling their money into buy – to – let properties. One easy way to stabilise rents is to kill demand for rental properties – this is where the help – to – buy scheme comes in.
Based on current savings it would take the average tenant 23 years to save the necessary deposit for a home, according to a study by Scottish widows. Based on the average property prices, a 5% deposit equates to more than £8,000. It’s not the sort of money that most people having sitting in their back pockets.
Of course, the government still needs to address the supply issue and build more homes, but its private landlords that have driven house prices for the last decade.
I think that giving people a helping hand onto the property ladder could help the market by reducing demand for rental properties and therefore driving down the profit for landlords. What do you think?