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Help to Buy must not cause housing bubble

There is concern that the proposed Help to Buy Scheme will cause the housing market to overheat.



Since the Help to Buy Scheme was announced in the March 2013 Budget by the Chancellor George Osborne there has been a long list of critics.

The Bank of England’s Sir Mervyn King has warned the Help to Buy Scheme must not become permanent with fears of another house price bubble in the economy. Now Business Secretary Vince Cable has questioned whether the scheme should be launched.

Government to push ahead

Despite the criticism the government intends to push ahead. last year it started the £80bn Funding for Lending Scheme reducing the cost of borrowing for house buyers.

The first part of the Help to Buy Scheme started in April was available only to new builds but the second part worth £130bn will offer guarantees to both first time buyers and home movers.

For phase two homebuyers need deposits as low as 5% with the balance secured with a 95% mortgage from a lender for homes worth up to £600,000. The government offer the lender a 15% guarantee on the property value to protect them from defaults and negative equity.

The Help to Buy scheme is not available to switching remortgage buyers or buy-to-let investors as it supports new home ownership to people struggling to get on the property ladder.

House price rise to continue

The extra demand will mean more people chasing a limited supply of properties resulting in higher property prices already rising at 6% annually.

Higher prices means home movers would need to have a larger deposit or a bigger mortgage and this would increase the cost of monthly repayments.

The rise in house prices is is good news for a government just two years from the next election as it gives many voters the feeling of rising prosperity.

This will be counter productive in the longer term as house prices are currently rising faster than earnings. It means first time buyers will need ever larger deposits to buy their first home which could be impossible without the Help to Buy Scheme.

House prices are likely to rise in the future to the benefit of existing homeowners such as remortgage buyers giving them an opportunity to release capital which they can use to improve their home.

Older homeowners with considerable value in their property offers the equity release mortgage buyer access to cash which they can use to repay an interest only mortgage, buy a more expensive home or help your children start or expand a business.

What are your next steps?

Call our LCM mortgage brokers for advice if you are a first time buyer, want to remortgage your existing home for the best mortgage deal, moving home or are a buy-to-let investor.

Learn more by using the property value tracker chart, mortgage cost calculator and equity release mortgage calculator. Start with a free mortgage quote or call us and we can take your details.

For equity release buyers our London City Mortgage advisers can recommend lifetime mortgages allowing you to receive cash from your property for home improvements, holidays or even give to a family member.

Use your dashboard to access online mortgage quotes, money off vouchers and start your mortgage application online 24/7 on desktop, tablet or smartphone.


Mortgage Best Buys

These are examples of mortgage products we can approach with many more offering interest rates and flexibility to meet your needs.

1.17% Fixed Rate
60% Loan to Value
£1,025 App Fee
Until 31/09/2022
Reverts to 3.59%
1.19% Fixed Rate
60% Loan to Value
£999 App Fee
2-Years Time
Reverts to 3.59%
1.18% Fixed Rate
60% Loan to Value
£1,034 App Fee
Until 31/10/2022
Reverts to 3.59%
1.16% Fixed Rate
60% Loan to Value
£1,525 App Fee
Until 01/11/2022
Reverts to 4.09%

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  • IMPORTANT

    Equity Release may involve a Lifetime Mortgage or a Home Reversion Scheme. To understand the features and risks, please ask for a personalised illustration. Equity Release may affect your entitlement to means tested state benefits and will impact on the size of your estate. For Equity Release London City Mortgages charge a fixed fee upon completion of £695. For Mortgages a fixed fee is charged on application. Typically this is from £295 up to £495 for the services selected.

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