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Following David Cameron’s “surprise” announcement at the Conservative annual conference a few days ago, the government have today officially launched Help to Buy Part 2.

Help to Buy Part 2 in simple terms is where a purchaser can buy a property with a just a 5% deposit with the lender purchasing a guarantee from the government covering up to 15% of the value of the property. This reduces the risk to lenders and in theory should increase their willingness to lend to those with smaller deposits at more competitive rates. The scheme is available to both first time buyers and existing home owners buying either a new build or an older property up to the value of £600,000.

I say “surprise” announcement as this all looks quite planned! From today you are able to apply for a mortgage under the scheme from one of the banks currently offering Help to Buy mortgages. Mortgages will only be guaranteed from January 2014, the original launch date advertised. It should be highly unlikely that someone completes in November or December 2013 then defaults before January 2014!

One interesting point to come out of the detail is the fee the government is receiving from the lenders (which effectively will be passed on to the borrowers). The lenders will be charged a fee of up to 0.9% on the total mortgage amount. 0.9% of the £130bn of mortgages expected to be in the scheme is over £1bn for the government – assuming no pay-outs of course! A nice immediate cash windfall!

£12bn of mortgage guarantees has been made available by the government. How popular will the scheme be? Rightmove have announced statistics from their website since Cameron made his announcement that imply huge interest. The doubters are saying this will cause a huge property bubble problem and will be difficult to withdraw. Others are saying availability and the fees charged can be adjusted to keep the scheme under control.

As always, we will wait to see the overall effect on the housing market over the next few years!

In the last budget, the Government released details of their new ‘flagship’ property scheme named ‘Help to Buy’ that they are pinning their hopes on to give the economy a much needed boost.

The first stage of this scheme which has been available since 1 April 2013 is to assist anyone buying a new build home. First time buyers and home movers are eligible to buy a property up to the value of £600,000 only requiring a 5% deposit. 75% is funded by a mortgage which leaves 20% paid by the government through an equity loan. The big plus point – the government loan is FREE for 5 years. Even after that there is only a 1.75% annual fee rising each year by RPI. Very cheap even compared to current mortgage rates.

Latest reports indicate that the scheme is taking off and interest has been “huge”. Hardly surprising really given the availability and minimal restrictions.

The scheme has recently received a lot of bad press with one leading commentator even going so far as branding it one of the “most stupid economic ideas” of the past 30 years. Even the departing Mervin King has thrown in his concerns stating the measure must be temporary.

Ignoring the negatives for the moment and concentrating on the potential positives:

There is no doubt this will give the property market a boost and will benefit property developers in a big way. This in turn will free up cash and should help the developers to build more properties. Maybe this will help with the supply problem? If so, presumably supply will balance off with the demand and prices will not over inflate.
Furthermore, increased activity from the developers will feed down to all their subcontractors and suppliers – which must be a good thing to assist job supply.
Gardeners, cleaners, decorators, plumbers, electricians etc are all used more by purchasers of property. Not to mention all the new furniture, garden equipment, tools, computers, kitchen appliances etc that need to be bought. All this again will help the economy.
The asset is in the UK and it is a significant asset!!! At least money is not being sent out of the country and all related purchases can circulate and benefit the UK economy.

This is all just the start. From January 2014, the second part of the scheme will kick in which will be available on ALL properties, not just new build, and is expected to be some sort of government mortgage guarantee. We await the full details of this stage from the government in due course but the impact of this stage of the scheme could be even bigger!

One thing is for certain – the property market will be closely monitored over the coming months and the government will be hoping this gamble will pay off to prove their doubters wrong!