Help to Buy: ‘It is hard to imagine a more reckless, short-termist measure’

Even with the London Help to Buy 40 per cent equity loan, research has found that Camden property wi

Even with the London Help to Buy 40 per cent equity loan, research has found that Camden property will remain out of reach to most average earners - Credit: Archant

A leading affordable housing campaigner described the extended Help to Buy loan for Londoners as a “reckless, short-termist measure” in response to research into the potential uptake of the equity loan scheme

Duncan Scott, director of Priced Out, the campaign for affordable house prices said: “The expanded loans now available under Help to Buy makes a bad scheme even worse.

“All that will happen is that more debt will pour into the London housing market, which will inflate London house prices even further and create an even tougher situation for future first-time buyers.

“It is the taxpayer who will be underwriting this extra debt, so all of us will be on the hook if the London house price bubble bursts.

“It is hard to imagine a more reckless, short-termist measure than the government actively feeding our addiction to rising house prices.”

Mr Scott was responding to research by estate agent Savills, which looks at how the figures behind the London Help to Buy scheme, announced by George Osborne in the Autumn Statement, stack up.

From April 2016, applicants to the scheme will receive a 40 per cent equity loan for new build properties up to £600,000 in the Greater London area.

The report found three main stumbling blocks to hopeful first time buyers in London considering the scheme: income requirements; high deposits, even with the 40 per cent loan; and a sharp rise in the cost of servicing the mortgage once interest is charged after five years.

Savills found that Camden was one of four London boroughs, along with Westminster, Hammersmith & Fulham and Kensington & Chelsea, where average property prices are above the £600,000 cap for the equity loan scheme, suggesting that there is unlikely to be much uptake in these areas, while average prices across London top £500,000.

Assuming a 3.85 loan to income ratio for its calculations, the report found that even with the 40 per cent equity loan, house prices in the capital have so far outstripped income levels that it will not be possible to buy a median priced home on a single full-time income in any London borough and even two income households will struggle in many boroughs.

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Haringey and Barnet are among the eight boroughs where the necessary household income to buy an average priced property is at least £60,000, almost double average incomes in those areas. In Camden, buyers would need to earn £96,714, a ratio of 244 per cent to the median income of £39,610.

High property prices in London also mean that raising even a five per cent deposit as well as the associated tax and fees will be impossible for many without significant contributions from family or high end of year bonuses.

In Camden the median property costs £677,000 but, for property bought at the £600,000 cap, buyers would need to find a £30,000 deposit and £20,000 stamp duty, as well as solicitor’s fees and other associated costs.

The costs of servicing the mortgage will also rise sharply after the five year interest-free period, the research found. It assumed that the mortgage rate would have risen from 2.5 to 4.5 per cent and incorporated the 1.75 per cent interest charge on the 40 per cent loan.

Using these calculations, a typical first time buyer in Camden would pay £20,210 per year in mortgage costs for the first five years of the scheme. In the sixth year this would rise to £29,850, an additional £9,640 a year, or £803 per month.

There are also concerns that increasing the demand for first time buyer properties will inflate house prices, pushing them even further out of reach of first time buyers.

Tulip Siddiq, MP for Hampstead and Kilburn said: ““With each new initiative, it is becomes more obvious that the government is incapable of confronting London’s housing crisis.

“It is unsurprising that another demand-generating measure, such as Help To Buy, will do little to help those on median incomes. This is because of the simple truth that there isn’t the supply to cool an overheated market in which prices are completely out of control. The situation will not improve until we address Britain’s affordable homes shortage.

“The government must build thousands more truly affordable homes for families on low and average incomes, before we begin to see laudable measures, such as Help To Buy, actually have an impact.”

Lucian Cook was more sanguine about the effect the new scheme will have on the London property landscape. He said: “The scheme will not be accessible to everyone, but it will still open up the market to a wider range of buyers.”