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End of HTB Signals Higher Deposits

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The Government have scheduled Help to Buy phase 2 to cease operating in the first quarter of 2017 and according to new research, that spells ominous signs for first time buyers. 

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Lifestyle protection and mortgage insurance company Genworth conducted the research. It suggests that the staged expiration of the Government’s Help to Buy mortgage guarantee scheme (HTB2), will make the first time buying process so much more challenging.

Presently HTB2 allows FTB’s to lay down just 5 per cent of the property purchase price, but the expected minimum deposit is expected to change to 20 per cent – and there the problem lies!

The Bank of England have forecast that by the time the scheme ends, the average home for a FTB will be approximately £173,308. Therefore the deposit required will be at least £8,665.

Genworth’s report reveals that the average first time buyer is able to save £246 per month. If this is the case, then it would take them around three years to accrue the said amount.

However, when Help to Buy finishes and 20 per cent deposits become the new norm, then we shall have a whole new ball game!

Twenty per cent equates to £34,662 and that would add another seven years to the savings period needed to acquire the deposit. Of course, also bear in mind that house prices are extremely likely to rise within the extra time frame, which will only make things even tighter for FTB’s to reach their allotted target.

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The BOE also forecast property prices to inflate by 20 per cent within the next three years. Surely this will make prospective buyers in this predicament feel like they are climbing up a downward escalator trying to get to the top.

Simon Crone from Europe at Genworth is sympathetic. The mortgage insurance company’s vice president explains: “Trying to buy your first home in the current climate is like chasing a runaway train. Even with good salaries that could comfortably support a mortgage, thousands of aspiring first time buyers can only save modest sums – especially those who are already paying rent. This deposit trap is why many feel they are left with the all-or-nothing choice of borrowing from family or waving goodbye to ever owning a home.”

Since Help to Buy was launched, there has been pockets of criticism aimed at the scheme saying that it has been a major catalyst for driving up the price of property in the UK. But there is little doubt that it has helped many people achieve the dream of owning their own home that they would otherwise never have been able to afford.

Before the chancellor introduced his flagship scheme, 80 per cent LTV (Loan to Value) home loans was standard and it looks like it will be returning to that figure once again.

Mr Crone added, “Rising house prices and another mortgage drought would deal a double blow to first time buyers and set their prospects of owning a home back by years. It is time to consider how an improved scheme to support high LTV activity can make affordable mortgages a long-term offer to first time buyers while transferring risk from the taxpayer to the private sector.”

About the author

David Griffin David Griffin trained as a graphic designer and now helps PaydayLoan123 with social media. He is a born and bred Londoner who has recently moved out of the capital and is probably missing it a little too much. He enjoys fishing, playing golf and working out at the gym, when he feels energetic enough!

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