Is Help to Buy helping the borrowers it was meant for?

Bricks building housing construction

Mortgage experts have called for Help to Buy to be overhauled and say the scheme may not be helping the would-be buyers it was intended for.

The Help to Buy equity loan scheme, launched in April 2013, sees the Government lend up to 20 per cent of the value of a new-build home to buyers with a 5 per cent deposit.

Due to rising house prices, in February the Government changed the upper loan-to value limit from 20 to 40 per cent for Greater London properties.

Last month it emerged first-time buyers cannot use the Help to Buy Isa to boost their deposit, after the Government introduced a clause limiting the bonus until after completion.

Brokers have also recently expressed frustration at a clampdown by the Homes and Communities Agency which effectively cut them out of the loop when advising clients on the Help to Buy equity loan scheme.

Darlington Building Society chief executive Colin Fyfe says: “Overall Help to Buy is a good addition to the market and is helping new homeowners onto the ladder. It is also helping the construction companies.

“Where it potentially has got some issues is there is not strong enough confirmation that the people getting the Help to Buy support are the ones who need it the most.”

Fyfe argues the scheme allows borrowers who could afford a full deposit to instead save money by using the Help to Buy scheme, and the system needs better means-testing.

He says: “If that means an individual who didn’t have a deposit was no longer able to get their foot on the housing ladder, we will have reached a situation where Help to Buy hasn’t achieved what it was launched for.”

London Money mortgage adviser Martin Foad says: “I have helped two clients this year with the scheme. Both wouldn’t have been able to buy houses without it.

“Can it be changed or revamped? Absolutely. It is helping some people but it is missing others because it is just scratching the surface.”

Foad says the London upper LTV limit of 40 per cent should be extended to other parts of the country that also face affordability issues.

He adds: “They could also look at increasing that to look at 50 or even 60 per cent.”

London & Country Mortgages associate director David Hollingworth says the scheme does help first and second-time buyers, and that it lets users afford the house they want without overstretching their incomes.

But he also says London weighting could be applied to other parts of the country.

He says: “There will be lots of people in and around the south of England that will be able to make use of a larger equity loan. We shouldn’t rule that out. There is no lack of appetite to build on the success of Help to Buy as it continues to evolve.”

South Coast Mortgage Services director Gareth Davies says Help to Buy has helped a number of people get a house they would not have otherwise been able to buy.

He admits the 13 lenders currently on the scheme do not represent ideal consumer choice, but he argues this is still enough to provide competitive deals to consumers.

But he believes lenders and Help to Buy agents need to communicate with customers more effectively about what happens when they need to remortgage.

He says: “One downside is the remortgage side. There is a lack of communication about what options people have when it comes to remortgaging, and whether they can use the Help to Buy scheme or not.”

Fyfe argues the recent bad press is unlikely to cause lasting damage to the reputation of Help to Buy.

He says: “I don’t believe Help to Buy will have taken a hit from the people who are typically the ones using the scheme. People reading the financial broadsheets will realise there is a fly in the process, but I don’t think the man or woman in the street will be negatively impacted.”