This is an extraordinary announcement by the government, especially as one of the biggest issues with part two of the Help To Buy scheme was that there was some concern whether lenders would be ready to introduce the scheme in January, let alone October. It will be interesting to see how many lenders will have the systems in place or the scope to cope with increased demand so soon. At least this move will have put an end to fears that activity would dry up towards the end of the year as buyers waited for the scheme to commence in January.
The biggest concern however, is of course the fact that the increased surge in demand, when the supply of property has not increased, could create a house price bubble especially in places such as London where prices are already jumping. Whilst the Chancellor has sensibly given the Bank of England power to fundamentally change the scheme should such an event look evident, by unexpectedly introducing the scheme earlier, the Government hope to have avoided a situation whereby further economic improvement and a naturally busy last quarter of the year without this scheme would make more people question its need altogether.
The reality is that many areas of the UK are a long way from experiencing the growth in the property market needed for a healthy economy and the absence of 95% mortgage lending is an issue that needs to be addressed. It should be remembered that lenders who take up this scheme are not going to abandon the more prudent lending criteria that they have adopted in recent months so borrowers at this level will still have to pass stringent affordability checks as well as having a clean credit reference which will ensure only those most able to service such a loan gain access.
Either way, the final quarter of this year is likely to be even busier for everyone in the property market than they already imagined.
Andrew Montlake, Director of Coreco, a leading London Mortgage Brokerage