Help to Buy Scheme Comes To an End

23rd January 2017

The Council of Mortgage Lenders has announced it will no longer be providing government backed mortgages under the Help to Buy Scheme (H2B).

The scheme was first introduced in October 2013 to boost activity at Higher Loan to Values (LTVS) which many lenders tended to shy away from after the financial crisis in 2007/8.

It meant that first time buyers were squeezed out of the market, with lenders reluctant to take risks with high LTVs resulting in a subsequent lack of availability of loans with a small deposit, a necessity for the majority of first time buyers.

The government realised the problem was significant and launched the H2B scheme which allowed buyers to purchase new build houses with only a 5 per cent deposit.

The scheme meant that lenders were able to provide mortgages to first time buyers at 95 per cent LTV, and with the government guaranteeing 15 per cent of the loan, lenders were more likely to lend, comfort in the knowledge that should a borrower default, they would be covered.

The Government has now said that as lenders are now providing higher loan to value mortgages, encouraged it has been said by the government’s H2B scheme, they are no longer required to support the market.

Figures reveal how lending at the higher LTV has increased significantly, according to Moneyfacts.co.uk, “from 50 mortgages available on the market for people with a 5% deposit saved in October 2013…to now where there are more than 250 such deals available.”
Despite much criticism the H2B scheme appears to have been a success for the first time buyer, with five times as many higher LTVs available now, since the financial crisis hit almost 10 years ago.

In addition, where there are a few options for 100 per cent mortgages available, such as Santander, where they allow borrowers to use a personal loan as their mortgage deposit, effectively meaning that buyers can borrow 100pc of the cost of the property.

Alternatively, The Market Harborough Building Society launched a 100 per cent mortgage in December but it requires a parent to effectively register their home in the event of default.

All in all, there are many more options available now in post-Brexit period than there were post-financial crisis and it gives hope to the First Time Buyer that there’s more choice available to buy their first home, with a loan that suits them and their financial situation.

Tony Freeman
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