The British Bankers’ Association (BBA), whose members include the likes of HSBC and Barclays, has warned Chancellor, George Osborne that Help to Buy, which helps would-be homebuyers with small deposits get on the housing ladder, could cause problems if it continues to run without a clear end date.
Issuing the warning ahead of the government’s Autumn Statement on December 5, BBA chief executive, Anthony Browne said that a clear exit strategy was necessary to prevent taxpayer subsidy of the property market from becoming the norm.
Help to Buy, which has been hailed as a success by the government, has so far seen more than 2,500 mortgage applications and 10 completed property purchases.
The first ‘shared equity’ phase of the scheme, launched in April, is where the government lends homebuyers with a 5% deposit a further 20% of a property’s value in return for a 20% share of the home until such as time as the loan is paid off. This part of the scheme only applies to new-build homes.
With the second ‘mortgage guarantee’ phase of Help to Buy, the government provides lenders with a guarantee for a further 15% of the property’s value, which – in theory – encourages them to lend at rates more akin to those with a larger deposit.
Help to Buy has been criticised as having the potential to contribute towards a property bubble, increasing demand while supply fails to keep pace, and therefore pushing up prices. Priced Out – a group campaigning for affordable house prices – believes the upward pressure on prices caused, in part, by Help to Buy will create problems in the future.
Priced Out director, Duncan Stott, said: "The upward pressure on house prices that's being created by Help To Buy is the last thing first-time buyers need. The lack of clarity from the government about how Help To Buy will end just raises the dangers that taxpayers will be guaranteeing mortgages in perpetuity.
"We need the government to clearly spell out when Help To Buy will end, and to avoid pricing out many more first-time buyers, the scheme needs to end as soon as possible."
Even at current prices, it takes one-in-five first time buyers between four and five years to save for a deposit, according to research from Clydesdale and Yorkshire Banks, while two thirds are still getting help with their deposit from their parents.
Shadow Chancellor, Ed Balls has called for an urgent review of Help to Buy, ahead of the scheduled review in 2014, and criticised the government for failing to increase housing supply.
Scrapping stamp duty
Meanwhile, a group of Conservative MPs is calling on the government to scrap stamp duty on all homes worth less than £500,000. As it stands, stamp duty is a tax paid on the purchase of all properties worth more than £125,001.
The duty is paid as a percentage of the value of property, and increases in line with its price.
Properties worth between £125,001 and £250,000 are subject to 1% stamp duty, while those between £250,001 and £500,000 are subject to 3% stamp duty. The Free Enterprise Group is calling on George Osborne to scrap all stamp duty on both bands.
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