In Wales, the Help to Buy scheme, which aimed to kick start the UK housing market after the financial crisis of 2008 was rolled out in two stages:
Stage 1 concerned solely new-build houses. It saw the government offer a 20% loan to go towards the equity of a new-build house in Wales – up to the value of £300,000. All potential buyers would have to contribute a deposit of 5% and the 20% loan will be paid back when the house is sold.
Stage 2 was introduced in Wales alongside the rest of the UK. It was a mortgage guarantee scheme that saw the government work directly with lenders to enable them to provide 5% mortgages to potential homeowners. Under the scheme, buyers could purchase any house up the value of £600,000.
Since it was launched, and particularly since the second stage was rolled out in October 2013, Help to Buy has kick started demand across the country. In July 2014, ministers announced that it has enabled more than 30,000 people to buy a home.
Criticism of Help to Buy
However, with increased demand, and historically-low house building rates, comes rising prices. Critics of the scheme have said that it will make house prices rise artificially high and create a dangerous bubble similar to pre-crash levels of 2006. Opponents suggest that it targets the symptom of the problem (high house prices) and worsens it by increasing demand, rather than trying to combat the cause, which is a worsening supply of new homes.
Will it work in Wales?
While it’s fair to say that Help to Buy has certainly contributed to the sudden rise in UK house prices, as well as Wales – latest figures from Nationwide[i] show that values have risen by between 10 and 12% in Wales in the last 12 months – affordability seems less of an issue for prospective homeowners west of England.
House prices, in general, remain more reasonable in Wales. Highlighting this, a recent study by Bishops Move[ii] showed that just 8% of participants in Wales said that they felt “priced out” of the home that they wanted.
The survey showed that deposits were a problem in Wales – suggesting that the scheme could be necessary.
Nearly half (42%) of Welsh people surveyed said that raising a viable deposit was their biggest house-buying challenge – compared to just 12%, 15% and 13% of respondents in East Anglia, the North East and the East Midlands respectively.
Whether Help to Buy, and particularly its extended mortgage guarantee scheme, is a good thing in general remains a bone of contention in Westminster and across the country. And in prime locations such as London, the Cotswolds and Berkshire, where the scheme has had a marked effect on house prices, it seems to be pricing man out of the market.
However, there’s no doubt that for many people, particularly in Wales and other low-value locations, Help to Buy represents an opportunity for people to get onto the housing ladder when otherwise they weren’t able to.
Author – Howells Solicitors are one of South Wales’ most respected conveyancing solicitors, and in February 2014 completed Wales’ first property sale under the Help to Buy scheme.
[ii] Mortgage Finance Gazette – http://www.mortgagefinancegazette.com/latest-news/welsh-public-most-concerned-about-raising-a-mortgage-deposit/