Andy Burnham has unveiled Your First Home, a new Help to Buy-style scheme designed to help struggling first-time buyers onto the property ladder, with one expert speaking to Newspage describing it as “a lifeline for housebuilders dressed up as help for first-time buyers”.
The scheme would enable first-time buyers in England to buy a property with a deposit of just 2.5%.
It would provide first-time buyers with a loan worth 20% of their new-build property’s value to help pay for their home, with an initial interest-free period.
Burnham said the scheme would help young people who had been priced out of home ownership, while giving housebuilders greater confidence to bring forward new developments.
But critics have raised concerns about buyers taking on additional debt and the potential effect of increased demand on new-build house prices.
Your First Home
One financial expert questioned who the new scheme is really helping.
Craig Fish, Director at London-based Lodestone Mortgages, said: “This is a lifeline for housebuilders dressed up as help for first-time buyers.
“It’s new-build only, so the taxpayer is once again backing the one part of the market where buyers routinely pay a premium, and where developers build more or less depending on what incentives are on the table.
“Help to Buy got over 328,000 first-time buyers onto the ladder, but it also helped push up the profits of housebuilders, and some owners later found they couldn’t sell for what they paid.
“Charging developers a fee is progress, but it won’t stop a 20% loan being baked into the asking price. The timing is awkward too. Best five-year fixes have gone from 3.75% in March to around 4.6%, with a rate rise widely expected in November.
“Even with a 20% loan and a 2.5% deposit, buyers still need a 77.5% mortgage at today’s rates, and the interest-free spell won’t last. Clever politics, lazy economics. If Burnham wants to get Britain moving, scrap stamp duty for first-time buyers and downsizers.”
Deposit
The announcement, unveiled on Saturday ahead of this week’s Labour Party conference, is likely to be “welcome news” for housebuilders, according to Riz Malik, Independent Financial Adviser at Southend-on-Sea-based R3 Wealth.
He added: “Burnham has few options to revive the market. This was one of them. Reforming stamp duty was another but the likelihood of that happening is slim given the UK’s finances. This will be welcome news for UK housebuilders who have been struggling but may not be in time to have any meaningful impact this year.”
However, one expert was sceptical over whether the new scheme would really “get Britain moving”, believing it should only be judged a success if the homes remain “affordable” tomorrow.
Jamie Elvin, Director at London-based Strive Mortgages, commented: “Help to Buy may get Britain moving, but it cannot fix a housing market where the fundamental problem is a shortage of affordable homes.
“Helping buyers with deposits is valuable, but if supply doesn’t rise alongside demand, government support risks becoming a subsidy for higher house prices.
“With mortgage costs already squeezing affordability, any new scheme must be smarter and more targeted than its predecessor. The real measure of success shouldn’t be how many people Help to Buy gets onto the ladder today, but whether those homes remain genuinely affordable tomorrow.”
Despite the initial positive signs around the proposal, Martin Rayner, Financial Adviser at Compton Financial Services, believes the proposal is a “sticking plaster” for the government’s housing strategy.
He commented: “Help to Buy can get a first-time buyer over the deposit line. It will not get Britain moving on its own. If rates climb, the monthly payment still decides whether the ladder is climbable — a smaller deposit is worthless if the mortgage does not stack.
“Caps are understandable, but they distort the market at exactly the price point most first-time buyers are looking at, especially in London. If Help to Buy comes back, any limit has to be wiser than the old ones or the scheme just piles demand onto the same band of homes.
“Relaunch talk looks clever until you ask what it fixes. Build costs, planning and stamp duty still choke supply. Pour deposit help into a thin market and you risk the old trap: prices bid up to the scheme caps, and the buyers you meant to help pay more for the same home.
“If the aim is movement, cut the tax that stops people trading up and keep any deposit help simple. Desperation is selling a sticking plaster as a housing strategy.”
Focused support
While Help to Buy helped many struggling first-time buyers onto the property ladder, one financial expert says future support should be targeted at those for whom “the deposit is genuinely preventing home ownership”.
Stephen Perkins, Norwich Mortgage Broker and Managing Director at Norwich-based Yellow Brick Mortgages, said: “Help to Buy did help people who may otherwise have struggled to purchase, but the latest government evaluation also found that more than half of participants were not ‘additional’, suggesting they could have bought a suitable home without the scheme.
“If it returns, better targeting should therefore be a priority. Support should be focused on buyers for whom the deposit or affordability gap is genuinely preventing home ownership, rather than subsidising purchases that would probably have happened anyway.
“Higher mortgage rates also mean an equity scheme cannot solve monthly affordability on its own, and increasing buying power without increasing housing supply risks feeding through into prices.”
Lifeline
Matt Coulson, Founder at Rickmansworth-based Heron Financial Ltd, believes there is a “strong” case to bring back Help to Buy, but questions whether the scheme will actually help first-time buyers.
He said: “Bringing it back is far from desperate, because the evidence on the original is strong. The government’s own evaluation rated it very high value for money, the taxpayer actually made money as the equity loans were repaid, and it lifted new-build supply by around 15%. That undercuts the lazy ‘it was just a builder giveaway’ line.
“The fair criticism is more specific. Around half of buyers could have bought without it, and it nudged prices up a little in areas that were already expensive. So a relaunch has to learn from that: aim it at the people who genuinely can’t get there, keep it away from the hottest markets, and build it around the monthly payment.
“That last point matters most now. With rates where they are, the payment is what stops people buying, so a scheme aimed at the payment could do more today than it did a decade ago. Get the design right and it helps get Britain moving. Copy it blindly and it won’t.”
Mortgages
While the government says the finer details will be unveiled at the Budget, Tony Sanchez, Founder at specialist property finance publisher Bridging Loan Directory, thinks it will take time to see whether the ‘Your First Home’ scheme will work in practice.
He said: “For smaller housebuilders, the test is whether a revived Help to Buy scheme helps buyers complete purchases and releases capital for the next development.
“We’ve reported on developers whose money is tied up in completed but unsold homes, so stronger demand could make a practical difference.
“But lenders cannot build a proposed scheme into their sales forecasts until they know which buyers and properties qualify, how the assistance works and when it becomes available.
“Higher mortgage rates will still determine what buyers can afford. The detail matters more than the name.”
