With headlines over the past week announcing the closure of the Help to Buy scheme, many house-hunters have been concerned that the whole Help to Buy initiative was ending and with it, their hopes of receiving much welcome financial assistance when buying a new home. In fact, the government was only confirming that one part of Help to Buy, Help to Buy: Mortgage Guarantee, was to close at the end of this year, as it had already been scheduled to do so. Other Help to Buy initiatives will still be available after this date. Help to Buy: Equity Loan (also known as shared equity) is available until, at least, 2020 and Help to Buy ISA is available until 2019 with new homebuyers being able to use their savings acquired through the ISA until 2030.
Help to Buy: Mortgage Guarantee was launched initially to encourage lenders to give higher rate mortgages to homebuyers. After buyers put down a 5% deposit, the government, in effect, acted as a guarantor for a significant part of the remaining 95% mortgage. This meant that if borrowers defaulted, the government would step in with compensation. It led to a surge of higher rate mortgages being offered to house buyers. Since a number of mortgage lenders were calling for the scheme to be extended past the present deadline, the chancellor felt it necessary to make the announcement that the scheme would end as planned on 31 December.
Effectively, the mortgage guarantee scheme has become a victim of its own success. Making the announcement of its closure, chancellor Philip Hammond said the specific purpose of the scheme had now been “successfully achieved”. This is a reference to the fact that, outside the scheme, many more lenders are offering 90-95% mortgages, which has meant the mortgage guarantee is no longer needed. Unlike some other parts of Help to Buy, mortgage guarantee was available on all types of property, not just new homes.
When the mortgage guarantee initiative was launched on 1 January 2014 there were few opportunities for buyers to get 95% mortgages, partly because they are seen by lenders as higher risk mortgages. Initially, even the loans given under the mortgage guarantee scheme weren’t that competitive, especially when compared to other loans available that had a 10% or 20% deposit or those rare 5% mortgages available outside the mortgage guarantee scheme.
Today, it’s a completely different story with more than 270 products that offer 95% mortgages available compared to just 50 available at the beginning of 2014. Since it started two and a half years ago, 80,000 mortgages have been processed through the mortgage guarantee scheme.
It remains to be seen whether, after the mortgage guarantee scheme has ended, the same high number of 95% mortgages will still be offered by lenders. However, there is no doubt that Help to Buy: Mortgage Guarantee has changed the mortgage market significantly and helped homebuyers, particularly first-time buyers, get on the property ladder.
Julia Rampen, writing in the New Statesman, said that she sees the positive effects of the initiative even though, at first, she used to be a critic of mortgage guarantee. She says: “The scheme itself may be dead but as long as high street banks are still offering 95% mortgages, its effects will remain.” She adds: “The government always meant for mortgage guarantee to be a stimulus, not a solution for the long-term.”
So, for those of you who are worried that the entire Help to Buy series of initiatives are to stop at the end of the year, don’t be. With Help to Buy: Equity Loan as well as Help to Buy ISA continuing and with Shared Ownership also available, there are still plenty of ways you can receive help, whether it’s saving for your deposit, having an affordable mortgage or both. Find out more about Help to Buy here.