The government's Help-to-Buy equity loan scheme has been criticised for allowing housebuilders to "prop up the market" in parts of England where prices and demand for houses remain low.By making it easier for first-time buyers to get on the property ladder, the scheme was meant to encourage builders to build more properties where they are most needed.
Yet new research by Hometrack for the Financial Times has found that the scheme has been used most frequently in areas where prices have fallen furthest since 2007. That suggests that the regions where demand for housing is strongest have been neglected, in favour of propping up prices elsewhere in England.
The "equity loan" part of Help-to-Buy provides buyers of new-build properties that are taking part in the scheme with interest-free loans worth 20% of the asking price. This means that the homebuyer only has to come up with a 5% deposit to secure a mortgage for 75% of the property's value, making it easier to find the money. Since its launch in 2013, the scheme has been used to buy more than 100,000 houses in England.
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However, according to Hometrack, the scheme has been used most frequently in the northeast and northwest of England, where over the past three years it was used in 43% and 39% of new-build sales respectively, says Judith Evans in the Financial Times. Yet these areas have also seen the weakest house-price growth since 2007. By contrast, even after the loan limit in London was extended in February 2016 to 40% of a property's value, only one in ten new-builds were bought in this way in the capital, where arguably the need for housing is greatest.
This implies that developers made the scheme most accessible in areas where prices would otherwise have struggled. As Richard Donnell of Hometrack points out, one risk now is that when the original buyer comes to sell, there is no guarantee that in the absence of government help for their prospective purchaser they will be able to sell their property for the price they paid for it.
One group that has certainly benefited from taxpayer subsidies for house prices is the housebuilders. For example, nearly half of the 15,000 new houses sold by Persimmon last year were bought via the equity loan scheme. The big question now "is whether the government can wean lenders and developers off the financial drug" of Help-to-Buy, as buying agent Henry Pryor tells the BBC. "Watching commercial businesses get fat on taxpayer subsidies is not something that can, or perhaps should, last forever."
Should you buy a house for your student offspring?
Most university students are more concerned with repaying their student debt than saving for a deposit on a property, says Shane Hickey in The Guardian. Unless, that is, they have become homeowners already. The new "Buy for Uni" mortgage from the Loughborough Building Society is offering up to 100% financing for a property, as long as a close relative offers security for the loan.
Students over 18 can borrow up to £300,000, as long as the house is within ten miles of their place of study. If they borrow more than 80% of the value of the property, an immediate relative must provide cash, or equity in their own home, as security. Interest rates range from 4.54% to 4.74%, which makes the loan more expensive than the typical first-time buyer option (the similar Barclays' Family Springboard offers a three-year fix at 2.99% for loans of up to 100%, as long as parents provide 10% cash as security).
Bath Building Society has offered a similar product for nearly a decade, and such loans now account for 10% of its mortgage business. Default rates are "far lower" than on its standard mortgages presumably because the parents tackle any problems before they become too serious.
The property is also in the child's name, avoiding any potential stamp-duty surcharge liability for the parents (assuming they own their home). However, before you think about getting one of these loans, remember that the guarantor must be prepared to lock away money for a long period, and their cash or equity is at risk if things go wrong. That's a lot of responsibility. Also, the fact that these loans are even necessary is just another sign of how overpriced the UK housing market remains.
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