11 June 2024
If you are covering the Tory manifesto pledge to launch a new Help to Buy equity loan scheme and to keep the stamp duty threshold at £425,000 for first time buyers, please see the following comment from Holly Tomlinson, financial planner at Quilter:
“The promise of a new Help to Buy equity loan scheme and a permanent uplift of the stamp duty threshold for first time buyers marks a last-ditch attempt from the Conservatives to drum up support from prospective home buyers.
"Those looking to take the first step onto the housing ladder have been hammered over the past few years by higher interest rates and house prices hitting record highs. When combined with soaring inflation eating away at their hard-earned savings, the result was that home ownership was pushed further out of reach for many.
“The permanent uptick in the stamp duty threshold could help many young people to enter the housing market by reducing the overall cost of buying a home, while the Help to Buy equity loan scheme could support those struggling to save for a deposit - particularly given the requirement to put down just a five per cent deposit. However, it would be vital for those considering using this scheme to ensure they are aware of the risk of negative equity given the high loan to value, as well as the need to pay interest on the loan after five years.
"The Help to Buy equity loan would need to be carefully considered by the Conservatives to ensure it meets its intended outcomes. The government’s previous equity loan scheme had a substantial impact in terms of helping individuals, especially first-time buyers, to enter the housing market. 387,195 properties were bought using the scheme from April 2013 to May 2023, out of which 328,346 were by first-time buyers. However, the scheme’s impact was not uniformly positive.
“The scheme’s design, which allowed the government to gain a share of the property's appreciation meant that as house prices increased, so did the government's profit from these loans. This became increasingly burdensome for homeowners when they reached the end of their five-year interest-free loan period. With the interest rate initially set at 1.75% and then increasing annually based on inflation, many homeowners faced escalating costs, adding financial strain to what was intended to be an assistance program.
“What’s more, the scheme also had significant implications for house builders. By increasing demand for new-build homes, the scheme effectively lined the pockets of these developers. As more buyers were able to access funds to purchase new homes, builders saw an increase in demand, which likely contributed to the rise in house prices. This increase in demand, fuelled by government-backed loans, provided a substantial financial boon to the construction industry. However, this benefit to builders came with the caveat that it may have contributed to inflating house prices, making the market less accessible in the long run.
“Ultimately, prospective first time buyers have faced significant challenges and financial pressures in recent years, so this may be too little too late when it comes to currying favour with voters. Nonetheless, should the Conservatives be re-elected, it would be imperative that the scheme is thoroughly considered and does not allow what is intended as a helping hand to turn into a burdensome load.”
