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Help to buy (helping the market or not)

Over the past months, the Help to Buy Scheme has been subject to a lot of spotlight.  On one hand there is a known fact that it allows new or existing homeowners to buy a new built home sooner, with a smaller deposit and access to cheaper mortgage rates.

On the other hand, the Help to Buy Scheme has been regarded as one, which also provides a number of drawbacks for individuals, placing restrictions on them in respect of the properties they can buy as well as which mortgage provider they can use. In addition to this, it has been highlighted that the scheme has impacted the Scottish Housing market with some people holding the view that it has distorted it.

Although the scheme was introduced to boost the housing market across Scotland, many people seem to think that Help to Buy is dysfunctional, controversial and it should be stopped.

Help To Buy Scheme

What is Help to Buy and how does it work?

Help to Buy scheme was introduced back in 2016 with the initial plan to only run for three years but now has been extended and will operate until 31 March 2021. The initial aim of the scheme is to allow first time buyers and existing homeowners to purchase an affordable new build home from an approved homebuilder.

In order to participate in the scheme, you must complete an application following which it will be determined whether you qualify as an eligible buyer.

The scheme works on the basis that your mortgage provider will normally require you to put down on a newly built property a 5% deposit, following which a first time buyer will be in a position to obtain assistance of 15% of the purchase price of the property from the Scottish government. The remaining 80% of the value of the property costs is made up through obtaining a repayment mortgage from an approved mortgage provider.

You must be aware of the fact that the property will be need to be your only residence and the maximum value of the property you can purchase cannot exceed £200,000. In addition to this, the scheme will not be available to anyone wishing to purchase self-build homes nor will it be available for buy-to let landlords.

It is also useful to be aware of the fact that the Scottish Government as well as your mortgage provider will have a standard security on your property to secure their rights for the loans. 

Once you purchase your property, it is crucial to remember that you will not be allowed to rent the property out as the scheme is intended for sole residence. If you let your home you will be in a breach of the shared equity agreement.

The equity loan from the government will need to be repaid if you will be in a position to buy another property at a later stage.

There are a lot of factors to consider before making a decision on whether Help to Buy is the appropriate scheme for you. Consequently, it is crucial to obtain legal advice at an early stage from an experienced team of conveyancing solicitors.

How does Help to Buy impact house prices?

Although the scheme aimed to help those with lower income, many critics have stated that Help to Buy has done little to benefit them. Many have argued that the scheme resulted in increase in property prices in Scotland for everyone and has failed to fulfil its true aim.

This has been regarded as a negative impact of Help to Buy, but some supporters of the scheme have indicated that increase in housing prices can be a positive factor, allowing home owners to make potential profits in future.

Help To Buy Scotland

How does Help to Buy impact house builders?

Opportunities are provided to various housing developers across Scotland. And although many of them are building fewer homes than before the crash, half of the sales go through the government’s Help to Buy scheme, allowing them to make more profit than ever.

In particular, the bigger developing companies are those who have benefitted the most from the scheme, selling thousands of homes. Although the Scottish government has indicated that it is their intention to ring-fence one third of funding for Help to Buy to smaller developers, the figures show that companies such as Persimmon Homes Limited, Taylor Wimpey UK Limited and Barrat have gained the most business from the scheme. With figures stating that they are in fact responsible for building over 52% of homes supported by the scheme in Scotland, many think that the oddsare against smaller companies to enter such competitive market and increase their yearly profits.

Other impacts of Help to Buy scheme?

It has been portrayed that Help to Buy has played a very important role in sustaining the construction of new homes, substantially increasing the number of homes built over the past years. With a high demand for housing, it cannot be disregarded that Help to Buy has contributed towards thousands of jobs across Scotland.  To add, research suggests that the scheme has been responsible for contributing over £1bn in Gross Value Added to the economy.

Is the scheme beneficial?

Many argue that the speculative volume of the new house building has subsidised private interests. In particular, many hold the view that the various articles and figures indicate that increasing profits of home building companies and various shareholders have become a priority in a Help to Buy scheme. With thousands of homes sold under the scheme, it is conveyed that new homeowners are not the ones who are really benefiting the most from the scheme.

Various sources have stated that the housing policy has been focusing too much on demand and instead it would be more beneficial to focus on the supply side of affordable housing.

That being said however, although there are many people who criticise the scheme, evidence suggests that it has had a lot of positive impact. Primarily, it allowed many individuals with lower incomes to purchase a property as a result of its structure. The figures indicate that there have been thousands of households that have benefited from the scheme with perhaps potential to make profit if the property prices in Scotland continue to rise. In some situation, the scheme has assisted people who lived in social housing into home ownership.

In addition to this, it is crucial to note that the scheme has contributed towards creation of additional jobs throughout Scotland, contributing to the wider economy since it has been introduced. And, although, it can be argued that the scheme does have some drawbacks, many people believe that the scheme is successful in achieving what it was introduced for, helping individuals move on to or up the housing ladder towards sustainable and affordable home ownership.

If you are considering taking part in the scheme, it is crucial to obtain independent legal advice at an early stage. At Jones Whyte, our experienced team of conveyancing solicitors will clearly explain the process involved and help you decide whether the scheme is suitable for you. To discuss further, contact our specialist conveyancing team today.

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