HELP TO BUY SCHEME APPLICANTS GROWING – According to the Government approximately 100 new mortgages are agreed every day under the Government’s new Help to Buy Scheme; but will this simply create another boom and bust property market?
Today, David Cameron will announce the growing success of the Help to Buy scheme as some 6,000 applicants have successfully used it in order to purchase their new home.
Officials noted that the scheme will create nearly an extra £1 billion in bank lending which ultimately assists first time home buyers to get a foot on the property ladder.
It is unquestionable that David Cameron will use its perceived success as a way to restore public confidence in his Government’s ability to get the economy moving and the banks lending once again; however some experts are already predicting that property prices are beginning to rise sharply, by up to 10 per cent in the coming year; this being a conservative estimate.
Not all appear content with Mr. Cameron’s plans, indeed Business Secretary Vince Cable last month told the Government that it should reconsider the Help to Buy scheme which he feels is responsible for the exponential rise in property prices in the South East.
The Help to Buy scheme was set up for any first time buyer who could put down a deposit of just 5% of the property’s asking price. With current lending conditions, most mortgages were only available for buyers with a 20% deposit; this came as a direct result of the 2008 financial crisis which propagated from the U.S after banks began lending with 0% down; these became widely known as sub-prime mortgages with zero risk to the buyer.
The Government now underwrites the risk to the mortgage lender which effectively reduces the risk to the buyer.
There are many experts who fear that Mr. Cameron has simply created his own version of the sub-prime mortgage disaster albeit the borrower does have to provide 5%.
In the event that people start defaulting on their mortgages this will again result in the property market bubble bursting with homeowners once again sitting on properties with mortgages they cannot afford and with a significant downturn in the property value.
Regardless of the concerns Mr. Cameron, along with the Chancellor George Osborne insists that the scheme promotes ‘responsible lending’ and that the average cost of homes purchased on the scheme stand at £160,000; a figure far below the UK average of £247,000.
Create any type of economic bubble and it will eventually burst; this is simply the life-cycle of such a creation. Of course it’s commendable that Mr. Cameron is trying to help people get on the property ladder but once the bubble bursts the taxpayer will once again be forced to bail out the banks by repaying the properties underwritten under the Help to Buy scheme.
There are those who feel that there is nothing ‘responsible’ about lending to people who have nothing, or in this case, nothing to lose.