Help to Buy: threat or boost to the economy?

John Elliott, managing director of Millwood Designer Homes, dismisses the moans of the pessimists berating Help to Buy

The Help to Buy initiative was only launched on April 1, but some pessimists have been quick to criticise the scheme. I want to fight back on behalf of Help to Buy.
Launched by George Osborne in his last Budget, Help to Buy is a new scheme funded by the Government that aims to assist buyers, both first-timers and those remortgaging, either on or up the ladder.
There are two parts to the scheme.
Equity loans worth up to 20 per cent of the value of a property will be available for those looking to purchase a new-build home worth up to £600,000 with a minimum deposit of 5 per cent. The scheme launched on April 1 will run for three years.
The second part of the scheme is an introduction of a new mortgage guarantee. Its aim is to enable more people to obtain a home loan without the need for a large deposit and will run for three years from January 2014. It will be available to home-movers as well as first-time buyers, and on both new-build homes and existing properties worth up to £600,000.
Since the Help to Buy scheme was unveiled, it has come under criticism from some people insisting it will create a subprime mortgage crisis. To compare us to the US crisis is not only ludicrous, it is insulting!
Firstly, we will not see mortgage lenders dishing out loans to borrowers with no income, no jobs and no assets. This is what sparked America’s infamous ninja borrowers – an allusion to the fact that such loans are often defaulted on, with the borrower disappearing like a ninja. I can assure you that this is not going to be allowed to happen in the UK!
The main hindrance to the recovery of the property market is the lack of mortgages. We’ve all known this for some time and finally we are being given a solution. At the core of the scheme is £12 billion of Government guarantees to support £130bn of new mortgages over three years.
This boost is greatly needed, but in the overall scheme of things this investment is tiny, so to suggest that it will collapse the economy or create an uncontrollable house-price boom is preposterous.
In fact, the scheme could support 75,000 sales of new-build homes over the next three years and is expected to boost private house-building by 30 per cent. This is vital to our recovery as a nation since construction is one of the best ways to stimulate economic activity. When the mortgage guarantee element of the scheme starts next year, we could be looking at up to 870,000 loans over a three-year period.
“The scheme is also not going to lead to any great increase in household debt, particularly when you base it on what has happened to income over recent years, nor (as I have already said) is it going to spark a house-price boom.
Even if Help to Buy results in an optimistic £130bn of new mortgages over three years, this is such a small amount when you consider that net mortgage lending was rising by well over £100bn annually before the crisis.
Most importantly, property is and always will be a safe and wise investment to make. If you are going to put your money anywhere, then the last few years have shown us that property is incredibly resilient as a long-term investment vehicle.
So taking out a mortgage is not a bad thing and this new scheme shouldn’t be looked on as the Government encouraging us to have more debt, when we should be trying to reduce it. We all need somewhere to live, so isn’t it better that we are gradually working towards owning our home?
Of course, you can take on too much debt, which happened prior to the crisis. Then, as a nation overall, the level of debt rose far too quickly and this was what led to the current recession.
However, this time we are not going to be allowed to take out 110 per cent mortgages or borrow way beyond our means, so debt will be controlled. The economy needs a certain level of demand (and, dare I say it, some modest annual inflation) for it to survive, and this new scheme is going to help that.
First-time buyers are a crucial element of the housing chain, but it has been a real struggle for anyone looking to buy their first home due to the hefty deposit requirements and strict lending criteria.
The scheme could help 160,000 first-time buyers get on the property ladder over the next three years, which represents a 25 per cent increase on current levels, injecting some much-needed life back into the market.
We need to get Britain moving again. The high restrictions and lack of mortgage availability over the last few years have been ridiculous. There is no way we can recover if the property market grinds to a halt and this new Government scheme is going to address that problem. To suggest that it will do more harm than good is complete rubbish!

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