Annual house price rise in April is 5.5% down from 9.6% in March, says ONS, while the number of Help to Buy completions have decreased.

The number of Help to Buy completions for first time buyers is lower in the first quarter of 2015 at 11,475 down from the same period last year of 11,897 suggesting the rise in average house prices to £209,000 is making affordability difficult.

According to the Office of National Statistics (ONS), house prices only increased by 5.5% in the year to April 2015, whereas from March house prices rose by 9.6%.

This is the slowest house price growth rate in a decade.

A large contributor to this was the fear of a Labour win and the introduction of a mansion tax, which would have halted those buying and selling properties worth over £2m for the entire election period.

How Help to Buy works

The government introduced equity loan as the first part of the Help to Buy scheme offering a 20% interest free loan for new build properties only.

These schemes only require a 5% deposit with the balance of 75% provided by a mortgage from a lender.

Phase two is the mortgage guarantee scheme available for both first time buyers and home movers on both new-build and existing homes.

This phase requires only a 5% deposit although you must arrange a 95% mortgage from a lender. The government guarantee the lender 15% of the property value rather than provide you with a loan.

For both schemes properties can be valued up to £600,000 but are not available for second homes, existing remortgage buyers or for buy-to-let properties.

Buying a home now less affordable

According to Matthew Pointon of Capital Economics, there are many flaws with the Help to Buy scheme. The primary one being that Help to Buy was able to temporarily boost the availability of low deposit mortgages, helping a lucky few first time buyers.

It is argued this improvement is temporary, as the resulting boost to house prices making buying a home unaffordable and locking other would-be buyers out of the market.

First time buyers can receive help from family members as the equity release buyer can access cash using a lifetime mortgage and gift the deposit for a home to children and grandchildren.

Two developments help explain why Help to Buy only had a fleeting impact. First, the government’s efforts to boost lending to riskier households have run up against efforts by the Bank of England to bolster financial stability by toughening up mortgage regulations.

Second, by giving a boost to housing demand, and in particular to demand from first time buyers house prices have gone up suggesting that due to supply and demand, the Help to Buy scheme has pushed up house prices.

This means people who would have been able to apply for the scheme now need even more money to meet the requirement to be able to afford the 5% deposit needed to take part in the scheme.

The scheme is also in direct conflict with the Bank of England’s mortgage regulations that are supposed to make it more difficult to acquire a mortgage, especially when you are considered risky for the bank.

The negative impact of the scheme can be seen by the increase in price for houses of first time buyers rising by 18% between March 2013 and September 2014, which only increased by 14% for home movers.

What are your next steps?

Call our LCM mortgage brokers for advice if you are a first time buyer, want to remortgage your existing home for the best mortgage deal, moving home or are a buy-to-let investor.

For equity release buyers our London City Mortgage advisers can recommend lifetime mortgages allowing you to receive cash from your property to repay an interest only mortgage, pay for care at home or gift to a family member.

Start with a free mortgage quote or call us and we can take your details. Learn more by using the property value tracker chart, mortgage cost calculator and equity release mortgage calculator.

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