Great news that the Help to Buy Scheme is continuing to be supported by the government for a further period. On Monday 2nd October 2017, the government committed another £10 billion to the project which will hopefully see it in action for another 10 years.The scheme launched in 2013 by George Osbourne is designed to assist first time buyers by subsidizing their deposit so that a deposit of 5% is possible.
With property prices taking such a giant leap in the last 20 years, at first glance you might think that the only way to level the field again is for property prices to come down. But we know what happens when property prices fall. Home owners go into negative equity and homes get repossessed. The Help to Buy Scheme is an imaginative solution meaning that more first time buyers are able to get on the property ladder, but without destabilizing the property market. Historically, starter homes were a low multiple of the local average wage, three, four or five times, but now they are considerably higher. The Office of National Statistics reported average wage earnings for UK to be £27,271 and the average price of a home, reported by the Land Registry to be £226,185 in 2017. This is a multiple of over eight times. With these figures it is easy to see that the barrier for entry to the property market is getting the deposit together, and not the interest rate, which has historically been the case. Help to Buy helps bridge that multiple gap, so with the ultra-low mortgage rates, home ownership becomes accessible.
Critics of the Help to Buy policy level that the housebuilder’s are the only ones benefitting from the subsidy as they are able to sell new homes at market price. In some areas, there has been an increase in house prices for first time buyers, but this should only be temporary as some areas have such a shortage of housing, the demand for a small supply has flooded the market. As we know, not only sustaining market price is important, but incentifying housebuilders to build for this end of the market is important too, as often more price per square foot is achieveable on a high end build. With this formula, house builders will continue providing for this market, until the market forces the price to come down – and that will be when the demand for new homes has been satisfied. So it won’t be any time soon but it is a good plan well executed.
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