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95% mortgage guarantee scheme well-meaning but could be flawed

Date: 02 December 2021

2 December 2021

If you are covering the new 95% mortgage guarantee scheme statistics and the Help to Buy statistics, please see the following comment from Karen Noye, mortgage expert at Quilter:

"First time buyers have had a rough ride over the past year with the stamp duty holiday, race for space and cheap mortgage deals all creating the perfect conditions for house prices to run riot. The 95% mortgage scheme was created to give those struggling to save for a deposit a lifeline to get on the housing ladder. Nationwide statistics yesterday showed there had been a 10% increase in house prices in just a year, which is more than enough to put getting your first toe on the housing ladder just out of reach.

"The new statistics today show that over 80% of people using the scheme were first time buyers, which is positive. And while just over 800 examples of people using the scheme seems low, the quarterly statistics only cover from April to June with it taking some time for lenders to bring out new products as part of the scheme and then house purchases to complete.

"Naturally, anything that helps generation rent get on the housing ladder should be applauded but there is a very real concern that people using the scheme could end up in negative equity if they bought at the height of the house prices boom and then there is a significant deflation in the current prices.

"If house prices do drop, as is predicted now the stamp duty holiday is completely gone, buyers who have used the guarantee scheme might face an uphill struggle if they want to sell their homes as they will need to cover all the negative equity to redeem the existing mortgage, moving costs and a deposit for the new purchase. So while this scheme is well meaning there could be some serious ramifications if the housing market cools considerably over the next months and years.

"In contrast, the Help to Buy statistics, also out today, show that there were 339,347 properties sold through Help to Buy Equity Loan scheme since its inception, with 83% of people using it being first time buyers. Similarly, the Help to Buy ISA scheme which is now closed for new accounts reported 435,798 property completions using the scheme.

"While once again this scheme is clearly well-meaning, its range of flaws have meant that it has not been anywhere near as successful as it could have been. Against a backdrop of other government backed products like the Lifetime ISA (LISA) many savers struggled to work out which option to go for and when faced with this difficult choice often opted to sit on their hands.

"For example, you can hold both a Help to Buy ISA and a LISA, however if you do, you can only use the government bonus towards buying a house via one of the accounts. What’s more, is that after careful consideration you can see that in fact the Lifetime ISA is far more generous as a first-time buyer can receive a maximum of £1,000 each year from the government if they contribute the full £4,000. In contrast, the average Help to Buy ISA bonus value is £1,095.

"This muddying of the water is not helpful for first time buyers who may already be overwhelmed by what is a complicated process. With the 95% scheme now also in play its more crucial than ever that first time buyers do their homework and assess whether buying at this moment of time is the best option for their long-term future."

Alex Berry

Alex Berry

External Communications Manager