Help to Buy Scheme - Good,Bad,Risky, who knows!

[sten_super]

Looks like the rates for a 95% mortgage will be between 4% - 6%, whereas a 60% mortgage is around 2.5%. If you can afford the repayments, what's the problem?

My sister has looked into this, and apparently that's not how the scheme works. The government effectively guarantees the first 20% of the mortgage, so you are taking out a 95% mortgage (with all of the sky-high rates that implies) and the government is only potentially on the hook for 20% - presumably that's how they can keep it off the balance sheet. As a result the interest rates are terrible (as bad, if not worse, than standard 95% mortgages).

The whole scheme is terrible - if they really want to help first time buyers, restrict the maximum value to something sensible (not £550k or whatever it is) and actually lend them the money. Also make it available on all houses rather than new-build only (which have a 'new house' premium). The aim should be to keep house prices stable (in nominal terms, i.e. falling in real terms) so that they can get back towards more sensible prices for new buyers to be able to afford, rather than encouraging people to borrow ever-increasing amounts.

 

[Herr Tubthumper]

But that is what Help to Buy is trying to fix, those with a high salary but no deposit. Now you could argue for a wholesale reduction in house prices, but all that is going to do is plunge millions (including nearly all recent FTBs) into massive negative equity. No Government is going to try to do that, and nor should they.

I could also argue for a wholesale curb/slowing down or levelling of increases which would not plunge people into -ve equity. Help 2 Buy has produced an unwelcome and unnatural spike in demand/prices. The nation really does not need another housing boom and if this means that, for a while, not everyone who wants to buy can do so right now...then so be it. I like to think that over the longer term people who wish to buy will be able to buy....just not everyone all at once and now.

 

[unklbrian]

One does have to wonder how many 3yr old distant relatives of Mp's and large private landlords will suddenly find themselves the proud owners of new properties ?

My suscpison is that the recent 'expansion' of the scheme was fed out to certain people to take advantage of before mere mortals get a look in , and that the end of a 'finite pot' will be reached suprisingly quickly

 

[Butch Willykins]

I didn't see the memo that said interest rates will remain at 0.5% for eternity.

Young people (and some not so young) will be stretching themselves to the limit to take advantage of this scheme, loading up on huge debt. For some, partaking in this scheme will be one of the worst things they ever do.

I'm all for lower house prices and initiatives to give FTB's a hand, but this scheme is not the answer.

A more appropriate name for the scheme would be "Help to buy votes for the next election" .

 

[Hatterlovesbrighton]

I could also argue for a wholesale curb/slowing down or levelling of increases which would not plunge people into -ve equity. Help 2 Buy has produced an unwelcome and unnatural spike in demand/prices. The nation really does not need another housing boom and if this means that, for a while, not everyone who wants to buy can do so right now...then so be it. I like to think that over the longer term people who wish to buy will be able to buy....just not everyone all at once and now.

Isn't that pretty contrary to the below. Should they have to wait or should they be able to get a mortgage now through Help to Buy.

"Agree. One thing that has depressed me is a conversation I had a few years ago with a couple of friends who both earn above average wages but did not have any hope in securing a mortgage without outside help. This to me is pretty shit. Surely you should be able to buy, at the very least, a small property from earning good money? Otherwise what's the point? "

Help to Buy helps these people and at the same time hurts BTL.

 

[unklbrian]

Help to Buy helps these people and at the same time hurts BTL.

Very little hurts BTL , their market power is such that they can outbid FTB's becuase they are garuanteed an income from the same people they have pushed aside ..
And pay cash for the same old properties that were the lifeblood of FTB's in the past [ now they wont need too, the goverment will bail them out as well ]

 

[Hatterlovesbrighton]

Very little hurts BTL , their market power is such that they can outbid FTB's becuase they are garuanteed an income from the same people they have pushed aside ..
And pay cash for the same old properties that were the lifeblood of FTB's in the past [ now they wont need too, the goverment will bail them out as well ]

Help to Buy doesn't apply to BTL. Simple market economics says that this hurts BTL. More people buying = less people renting = lower rents

 

[strings]

I posted this on another thread, regarding the help2buy scheme in its old 'newbuilds only' guise:

The help to buy scheme seems to actually be setting a 5 year timebomb. Basically the home buyer puts down a 5% deposit, the government put in 20% (which is repayable in 5 years) and the home buyer then takes out a mortgage for the remaining 75%.

Problem is, in 5 years time many will not have the cash to pay off the 20% that the Government put in, nor will they have enough equity to add the 20% loan to their mortgage (especially given new homes tend to initially lose value, and then recover after a few years).

I genuinely think that the help to buy scheme is a short term financial fix that will lead to increased repossessions in 5 years time.

 

[Shoreham Gull]

I posted this on another thread, regarding the help2buy scheme in its old 'newbuilds only' guise:

Old scheme was 'new builds only' !

New scheme started today I think is for ' new builds and pre-owed properties' ..

 

[Shoreham Gull]

Total rubbish.

Explain,
Why it's total rubbish?

 

[beorhthelm]

...Also make it available on all houses rather than new-build only (which have a 'new house' premium). The aim should be to keep house prices stable (in nominal terms, i.e. falling in real terms) so that they can get back towards more sensible prices for new buyers to be able to afford, rather than encouraging people to borrow ever-increasing amounts.

that would make it a much better policy, but needs there to be supply side policy changes to enable more (and crucially more suitable) building. it also requires longer term planning to see the results, something our governments are generally poor at and in the current climate very poor at.

 

[sten_super]

that would make it a much better policy, but needs there to be supply side policy changes to enable more (and crucially more suitable) building. it also requires longer term planning to see the results, something our governments are generally poor at and in the current climate very poor at.

Agreed, it's absolute pie-in-the sky - the government that guaranteed a real fall in house prices and the de-regulation of building on greenbelt land would be the party that received bugger all votes at the next election. Yet that is what's required.

I can't quite decide whether the problem they think they are 'solving' - that of households with sufficient income but insufficient savings - is due to the failure of the rental market (i.e. rents are too high) or the purchase market (i.e. the level of deposit required isn't consistent with the income multiples being offered). I think it's probably both.

 

[Herr Tubthumper]

Explain,
Why it's total rubbish?

You stated the only people who "hate" buy-2-lets are renters. I know people from all walks who have concerns about them. Therefore I think it's rubbish.

 

[unklbrian]

Help to Buy doesn't apply to BTL. Simple market economics says that this hurts BTL. More people buying = less people renting = lower rents

Simples my friend - they can consistently outbid FTB's , this is whats been happening locally for years - if the properties even reach the open market before the estate Agents tip the wink to the big landlords [ as an ex carpet fitter i've seen this in action many times ]

then all they have to do is - rent the same place back to the FTB's that they've outbid at a rate that makes them profits , even if the tenants are forced to get Housing Benefit to pay them .

Can you see the cycle we have created locally ?

 

[Herr Tubthumper]

Isn't that pretty contrary to the below. Should they have to wait or should they be able to get a mortgage now through Help to Buy.

"Agree. One thing that has depressed me is a conversation I had a few years ago with a couple of friends who both earn above average wages but did not have any hope in securing a mortgage without outside help. This to me is pretty shit. Surely you should be able to buy, at the very least, a small property from earning good money? Otherwise what's the point? "

Help to Buy helps these people and at the same time hurts BTL.

I see what you're saying but I think there are more sensible approaches which do not involve this sudden surge of purchasing and consequent price rises. A simple way would be to limit the number of Help to Buy deals the government allow. Or control house price inflation via other means such as a tax on buy-2-let. If the government want to help FTB then stagger the deals instead of having an estimated 600k in just one day. There might be disappointment for some, but on balance it's preferable in my opinion.

 

[Hatterlovesbrighton]

Simples my friend - they can consistently outbid FTB's , this is whats been happening locally for years - if the properties even reach the open market before the estate Agents tip the wink to the big landlords [ as an ex carpet fitter i've seen this in action many times ]

then all they have to do is - rent the same place back to the FTB's that they've outbid at a rate that makes them profits , even if the tenants are forced to get Housing Benefit to pay them .

Can you see the cycle we have created locally ?

Not really addressing the simple economics here though are you. A huge part of the reason why BTL snap up the flats is because there is no competition from FTB. With more competition BTLs either have to pay more for their properties or walk away. Most BTLs are soley motivated by money so I can't really see them being that interested in getting into a bidding war, especially as with more buying there will be less renting and so less pressure on rents.

 

[unklbrian]

A- BTL buyers compete with each other at auction ?
B- properties dont even get that far and are sold 'pre-market'
C- they will get their money back by letting out [they can go higher & simply raise rents when interest rates rise again]
D- simple economics - more people chasing the same few properties

 

[The Antikythera Mechanism]

I don't really understand all the hostility to BTL's (I'm not one by the way). If you are fortunate enough to have savings, BTL is one of the few ways to get a return on your money - 6% nett if you're lucky. It's not all about mortgage rates, the rates offered at present to savers are appalling.

 

[Herr Tubthumper]

A- BTL buyers compete with each other at auction ?
B- properties dont even get that far and are sold 'pre-market'
C- they will get their money back by letting out [they can go higher & simply raise rents when interest rates rise again]
D- simple economics - more people chasing the same few properties

This. And there is plenty of evidence from the last housing bubble to back this up.

 

[unklbrian]

I don't really understand all the hostility to BTL's (I'm not one by the way). If you are fortunate enough to have savings, BTL is one of the few ways to get a return on your money - 6% nett if you're lucky. It's not all about mortgage rates, the rates offered at present to savers are appalling.

I can see your point , BUT - wouldnt it be better to encourage investment in some form of Manufacturing .... say like Ermm ---- Germany ?

That way we end up with a far more stable economy , far less prone to inward investment produced Bubbles