Brokers have backed the Government’s upcoming £130bn Help to Buy guarantee scheme despite economists predicting the initiative will be a “flop”.
Under the first part of Help to Buy, applicable to new homes worth up to £600,000, buyers put down a 5 per cent deposit and receive a 20 per cent Government equity loan, which is interest-free for five years.
The second element of Help to Buy, set to launch in January, is a £130bn mortgage indemnity scheme for new and existing homes where the Government guarantees up to 15 per cent of the purchase price, with the borrower putting down a deposit of between 5-15 per cent.
The price of the guarantee and the extent of capital relief has yet to be announced.
Capital Economics property economist Matthew Pointon believes the MIG scheme will be “a bit of a flop” as it not such a good deal for buyers without the 20 per cent equity loan.
He says: “We might see an increased availability at higher LTVs but they are still going to be pretty pricey – that is if lenders offer them at all.”
But Lentune Mortgage Consultancy director Stuart Gregory says: “I think the MIG scheme will be a success. A lot of people do not want the 20 per cent equity loan tied up in the house, and are willing to pay a little more for full ownership from day one.”
London & Country operations and compliance director Pat Bunton says: “Shared equity schemes are not the right solution for everyone so the MIG scheme is a good and useful initiative that should help the marketplace.”
A spokeswoman for Lloyds Banking Group, the only lender to commit to the MIG scheme so far, says: “With the target markets very different, it is unlikely we will see a great volume move of potential buyers from one part of Help to Buy to the other.”