Ray Boulger: The government made the wrong changes to the Help to Buy scheme
The government made the wrong changes to Help to Buy – and should have cut the equity loan, Ray Boulger, senior technical manager at John Charcol, has argued.
He said that in the process the government could have spent half the money on the scheme.
In the Autumn Budget the government extended the Help to Buy scheme until 2023 but limited it to first-time buyers and introduced maximum price caps across regions in England.
Boulger said: “I think some changes were needed but the government made the wrong ones and introducing these regional price caps was wrong.
“The cost of properties would be way in excess of the price caps so it won’t be available in the expensive towns and cities where most want to live close to be close to work.
“We did need clarity but this will mean developers can’t build Help to Buy in areas where it may be needed and they will need to make choices on where to buy and build.
“Perhaps there should only be a cap in London and one outside of London but the regional caps make it complicated.”
He added that as the scheme was introduced in 2013 it was always unlikely to be appropriate five years later. Now the market has got significantly better and there’s not much difference in rates from 70%, 80% and 85% loan-to-value.
He said that Help to Buy has enabled people to trade up, buying into a nicer area or buying a house instead of a flat.
He noted that the government wants to phase out the scheme but a better way to do so would have been to reduce the amount of second charge from 20% to 10% outside London and from 40% to 20% in London.
Boulger added: “Trading up makes sense from a purchaser’s point of view, as by staying in a property for longer people save moving costs by not needing to trade up so quickly and have a nicer home sooner, but the government probably hadn’t worked out this was going to happen.
“Reducing the equity loan would’ve reduced purchase power, helped to prevent people using the scheme to trade up and would have been a better way of phasing out the scheme.
“Cutting the equity loan in half would save half the money and the ability of people to trade up would’ve been reduced too.”
Boulger thought the government also got it wrong by reducing it to first-time buyers because there’s second-time buyers without much equity that also struggle to find the deposit.
He said: “One reason why the scheme is still needed is most lenders have a maximum LTV of 80% to 90% on new build and only a few offer 95% LTV on new build so the mortgage industry needs to find ways of offering 95% LTV mortgages on new build properties.
“This is challenging and one way to do so may be offering slightly higher rates on 95% LTV new build properties than on a 95% LTV non-new build property but so be it.”