The Help to Buy service was welcomed with open arms by first time buyers back in 2014, who before its initiation struggled to afford a deposit to purchase a home. Now the Government has announced that the scheme will end for purchases on regular homes at the end of 2016, but will still be available for new builds until 2020.
The Chancellor, Philip Hammond, believes the end of the scheme should not be an issue as he argues 30 commercial lenders are now offering 95% mortgages outside the scheme, so those looking to purchase their first home should have minimal trouble getting their hands on a mortgage with affordable deposit term.
The likes of Jason Harris, First UrbanGroup’s Director, are still working to acquire undeveloped land to be sold on to developers for new homes. So, until the scheme completely ends in 2020 some buyers are still able to get on to the ladder with the assistance of Help to Buy, without having to extend their years of saving.
However, for the rest of the market, there could be a reduction in the amount of first time buyers. Without the scheme, lenders will adopt tougher requirements for those looking to obtain mortgages with smaller deposits as they will no longer have the support of the Government should something go wrong when taking on higher risk buyers.
Some market participants believe the property market will slump once the scheme ends, and many are calling for an immediate replacement. However, those who agree with the end of the scheme believe that a high loan to value arrangement was never going to be sustainable for the Government and there would always be an end point to Help to Buy.
If house prices continue to rise - in October this year they went up by £2,623 alone - this will pose an issue for first time buyers relying on the Help to Buy scheme for a low deposit and high loan to value mortgage. However, the move could also lead to a drop in house prices as the market adapts to smaller numbers of first-time-buyers, due to their inability to muster up enough money for a larger deposit.
With the end of the Help to Buy scheme, it is expected that the UK housing market will see an initial impact on the amount of first time buyers purchasing homes. However, the market would be expected to adapt if lenders notice a reduction in mortgage sales, with new products to accommodate first time buyers with smaller deposits. Patience is key; it is unclear what the outcome of Help to Buy's discontinuation will be but if a replacement is agreed it could work in favour of those looking to secure a home with a low deposit.