Help to Buy Scheme and UK Housing Market

Help To Buy scheme
Help to Buy is a government scheme designed to help borrowers with deposits of just 5 per cent get on to the property ladder.
The first part of the scheme (Equity Loan) was launched in April last year and offers loans up to 20% of the cost of a new-build home (up to the value of £600K). The loan will be interest-free for the first five years, then in the 6th year you will be charged an annual 1.75% fee (of the loan), which will increase every year (using the retail price index plus 1%). The second part of the scheme, called the Mortgage Guarantee, applies to all property purchases (also with a house worth £600K maximum) with a minimum deposit of 5% from the buyers. For instance, as you can see it on the picture below, with a £10K deposit, you can buy a house in the UK worth £200K (it won’t be a house in London though).


(Source: Government website)

UK Housing Market
With an 8% increase in average in 2013 according to indexes such as Nationwide (8.4%) or Halifax (7.5%), the housing market has helped overall UK growth along at the fastest pace in three years. Britain’s Q3 GDP printed eventually at 0.8% QoQ (1.9% YoY); we heard lately the IMF raising its growth forecast from 1.9% to 2.4% for the year 2014.The average asking price in the UK reached new highs of £243,000 in January (Rightmove), with London at the first place (12% YoY increase) and its expensive areas (Average sale price in September 2013 was £4.4 million in Knightsbridge and Belgravia).
If you read analysts expectations for the year 2014, most of them expect an 8% increase also, with Greater London being the best opportunity. Thanks to the Help to Buy scheme, house prices in Greater London will tend to catch up with the prime central London ones. Moreover, as more lenders come on board (Latest: Barclays is offering a fee-free three-year fixed rate at 5.35% and a five year fix at 5.49% since yesterday, Tuesday 21 January), competition is driving rates down little by little and could attract potential buyers.

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