Government Scheme Set to Create a Dramatic Rise in Mortgage Demand – and House Prices

21st Aug 13
Chris Lloyd PARTNER

Chris Lloyd

mortgage demand

Chris Lloyd


Government intervention in the mortgage and housing market through the Funding for Lending and Help to Buy schemes have seen an upturn in lending and property sales and, consequently, mortgage demand. The Chancellor’s major initiative – the second Help to Buy government scheme – is due to launch in 2014 and experts believe that it will result in a dramatic upturn in large mortgage lending.

However, many analysts believe that the scheme is also set to drive demand for homes and therefore prices. Here, we look at the new scheme and how experts believe it will affect the high value mortgage market.

How will Help to Buy government scheme work?

Under the Help To Buy Mortgage Guarantee Scheme which launches in January 2014, a buyer will need just a 5 percent deposit to purchase a home. Participating lenders would have the next 15 percent of any loan underwritten by the taxpayer.

This means that if property values fell by 20 percent, the lender would not be out of pocket as the buyer and the tax-payer would bear the loss.

To qualify for the guarantee, an applicant can be any age and can be a first-time buyer or an existing owner. However, the maximum limit for household annual income will be £150,000.

The property to be purchase can be brand new or already built and owned, but must cost £600,000 or less and cannot be a shared ownership or buy to let property.

Scheme expected to result in increased demand for homes – and higher prices

The existing government initiatives have already pushed up the number of first-time buyers and movers, with house prices rising at a rate not seen for several years. The Independent quotes Halifax research which says that property values are now 3.7 percent up on summer 2012 – the biggest rise in three years – while Savills, the estate agent, predicts that prices will rise 18 percent by 2017.

“With access to large mortgages with just a 5 percent deposit, it is clear that there is set to be a significant upturn in demand for high value mortgages when the second part of the Help to Buy scheme comes into force,” says Islay Robinson, CEO of London mortgage advisor and large mortgage specialist Enness Private Clients.

“I expect a number of lenders to sign up to the scheme – once further details are released – and the resultant rise in sales volumes is set to create a massive demand for mortgage finance,” he added.

The Government says there will be rigorous ‘stress testing’ of applicants to ensure they have the income and credit history to ensure they can afford the new guaranteed mortgages. And, ministers insist the existing Help to Buy initiative needs this further boost to ensure the housing market recovery takes hold in the long term.

However, with a substantial increase in demand for homes is likely to come rising prices, say experts. Housing industry analyst Henry Pryor told The Independent: “It’s a racing certainty that buyers are going to fill their boots with tax-payer guarantees. I expect sales of £450,000 to £600,000 homes to bounce as the Government helps people to buy what they would otherwise be unable to afford.”

Peter Williams, an analyst at the Acadametrics housing consultancy, says: “There’s a general view that the short-term outlook is quite promising. But in the medium term, as government initiatives fall away, market uncertainty will return.”

If you would like more information on how these changes could effect your mortgage, if you’re thinking of joining what we are deeming as the ‘Remortgage Renaissance’, then feel free to contact one of our expert brokers anytime, or take a look at our up-to-date guide.