Help to Buy 2 rolls house price inflation back by four years for first time buyers

Buyers are sidestepping four years of house price inflation by using the Help to Buy mortgage guarantee scheme to get onto the property ladder, according to new figures from Mortgage Advice Bureau, the UK’s leading independent mortgage broker.

Data from the broker’s National Mortgage Index shows the average house purchase using a ‘Help to Buy 2’ mortgage was £151,021 in April 2014.

Four years have passed since the average first time buyer paid a comparable sum to buy their first home (£151,000 in March 2010 according to the Office of National Statistics’ House Price Index).

This average has since risen by 27% to £193,000 in March 2014, leaving a 22% difference between today’s typical first time buyer purchase and that using a Help to Buy 2 mortgage.

It suggests the scheme is facilitating modest house purchases by aspiring homeowners – significantly below the level that has become normal in a climate where many first time buyers have to rely on parental support to raise a deposit.

The National Mortgage Index shows the average loan to value (LTV) for a Help to Buy 2 mortgage is currently 92.5%, while in comparison the latest CML figures show the average LTV across all first time buyers is 81.3%.

On a £151,021 property, this makes the difference between needing a deposit of £11,326 (through Help to Buy) or £28,241 (the first time buyer average).

Government figures show the majority (82%) of Help to Buy purchases using the mortgage guarantee are being made by first time buyers, with 85% outside of London and the South East.

Brian Murphy, head of lending at Mortgage Advice Bureau, comments:

“These findings suggest that mortgages at 90% and 95% LTV are being used carefully and responsibly through Help to Buy to give first time buyers an option that was in danger of becoming extinct.

“The Bank of England and government are coming under increasing pressure to take the heat out of sectors of the housing market, but writing off a scheme that is aiding those who most need it – predominantly first time buyers with modest levels of deposit – is not the way to go about it.

“Lending standards have been carefully monitored ever since the recession, and the new mortgage rules mean that scrutiny of borrowers’ finances remains rigorous and thorough with careful consideration given to the impact of future interest rate rises.

“Providing this continues, there is a strong argument to support the availability of mortgages with far more realistic deposit requirements than has become the norm in an increasingly lop-sided housing market, especially for aspiring first-time buyers.”