Q&A: Help to Buy mortgage scheme

Help to Buy scheme in window Image copyright PA
Image caption A number of lenders have signed up to offering mortgages under Help to Buy

The government says that its Help to Buy scheme has assisted people trying to get on the housing ladder who can afford mortgage repayments but who have struggled to raise a deposit.

But critics say that the government guarantee, that formed part of the second phase of the scheme, has helped to increase prices.

With the end of the mortgage guarantee part of the scheme in December 2016, the only remaining Help to Buy programme is the equity loan scheme, which now operates just in England.

It applies only to newly-built homes.

When did Help to Buy begin?

The first phase started in April 2013 in England. This saw the government offering a 20% equity loan to buyers of newly-built properties. These buyers must offer a 5% deposit. When the property is sold, the government reclaims its loan. So if the value of the property has gone up, the government will make a profit.

A similar scheme began in Scotland at the end of September 2013, and another scheme for houses of up to £300,000 began in Wales in January 2014. The Scottish scheme only covered properties up to the value of £400,000, whereas the English scheme covers properties up to the value of £600,000. The Welsh and Scottish schemes have now ended.

In November 2015 George Osborne announced that the equity loan scheme in England would be extended to 2021. Originally it had been due to end in December 2016.

Is there a new scheme just for London?

In his 2015 Autumn statement, George Osborne announced that, due to higher property prices in London, the scheme in London will be more generous. Instead of buyers getting a government loan for up to 20% of the property, they will now be able to get a loan for up to 40% of its value.

What about the mortgage guarantee scheme?

The second phase of Help to Buy, known as the mortgage guarantee scheme, began in October 2013 and ended on 31 December 2016.

Under this system, borrowers across the whole of the UK could put down a deposit of as little as 5% of the property price. The lender offered a mortgage covering the other 95%.

Lenders could sign up to the Help to Buy scheme and pay a fee to the government, which provided a seven-year taxpayer guarantee covering 15% of the loan value. That guarantee can be called in if the borrower defaults, for up to seven years after the loan was arranged.

It was available for all properties - not just new ones - sold for up to £600,000 in the UK.

Is there a chance of a return of irresponsible lending?

The government says that various rules have been included to ensure this does not happen.

For example, no interest-only or offset mortgages will be allowed. The system cannot be used for the purchase of second homes or for mortgages for buy-to-let investors.

In addition, lenders must put these borrowers through new affordability checks. These were brought in for everyone to avoid a return of the reckless lending of the last boom.

You mention boom, isn't this creating another one?

That's the fear from many commentators who say that Help to Buy is simply going to help some relatively well-off people move up the housing ladder.

Critics, including Labour, say that this does nothing to tackle the shortage of affordable homes to buy, so it wants more focus on house-building.

Treasury officials suggest that the system was designed to correct a failure in the market and stimulate builders to get going again with bricks and mortar.

In 2014 the Bank of England's Financial Policy Committee limited the amount that banks are allowed to lend on housing. No bank or building society can lend any more than 15% of its mortgages to higher risk borrowers; that is people who borrow more than 4.5 time their annual income .

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