Do homeowners know that they can use Help to Buy to move up the property ladder?
A revealing statistic from a recent Council of Mortgage Lenders (CML) review of the market showed that the number of purchases by so-called second steppers has only increased by around 3% since 2009
Over the same period, purchases by first time buyers are up by 40% and by landlords up by a whopping 80%. You can see that review here.
Now, a little perspective might help here. The CML expects movers to take out around 325,000 mortgages this year while first time buyers will account for 270,000 loans and landlords will take out around 160,000 mortgages. So, second steppers are still the largest group of buyers.
Nevertheless, it seems that first time buyers are the ones taking greatest advantage of improved lending conditions. Lending to first time buyers was growing in any event, but the UK government’s analysis of Help to Buy (HtB) in England shows that the majority of HtB purchases so far have been by first time buyers. Over 90% of those who used the new home version of HtB in England were first time buyers.
For movers as well first time buyers
Which begs the question, do homeowners know that they can use HtB as well? There are many reasons why existing home owners decided not to move, but perhaps the largest obstacle has been the relatively low level of equity that some now have in their property.
But this is exactly the sort of situation that HtB is designed to address. A 95% mortgage makes it possible for those with relatively little equity in their current property to move home.
Say, for example, someone currently has £15,000 equity in their home. To buy a home worth £200,000 with a typical 15% – 20% deposit would only be possible with £30-40,000 equity in their current home. But a 95% mortgage with the Help to Buy mortgage guarantee scheme would cut the size of the deposit required to just £10,000, putting a move within reach in a way that has not been possible for the last five years.
At the moment, that message doesn’t seem to have hit home. Most people, it seems, assume that Help to But is only intended for first time buyers. That’s not true and it’s time that existing homeowners recognised that they can benefit from HtB too.
You will find an outline of both Help to Buy schemes here.