What do Help To Buy mortgage guarantees mean for buy to let?

The government’s controversial Help To Buy scheme has been extended, and it could impact on the buy to let market.

The scheme, which is one of the government’s flagship housing policies, aims to provide assistance to those who wish to buy a property but cannot afford to do so on their own. But the scheme’s extension could have a significant impact on the UK’s buy to let sector.

What is Help To Buy?

Help To Buy consists of four sub-schemes: Help To Buy equity loans; shared ownership; NewBuy; and Help To Buy mortgage guarantees. The first tranche of the scheme was launched earlier this year, and provides loans to homebuyers wishing to purchase a new-build property. Loans are available under the scheme of up to 20 per cent of the value of a new-build home worth up to £600,000.

This month the government launched the final part of the policy: its Help To Buy mortgage guarantees. Under these arrangements the government will guarantee up to 15 per cent of a mortgage, and will allow homebuyers to make a purchase with as little as a 5 per cent deposit. Again, mortgage guarantees are available on properties up to a sale price of £600,000 – but controversially, and unlike the equity loans, they are not only available on new-build properties.

How might it affect buy to let?

First, it is important to understand that the mortgage guarantee will not be available to buy to let investors. But the potential implications of the new guarantee scheme could be wider than this.

1. Price inflation
The Help To Buy mortgage guarantee scheme has been particularly controversial because of the potential impact on house prices. Economists, estate agents, and other commentators suggest that the government could run the risk of further inflating the housing bubble by encouraging buyers to overspend. Even Vince Cable is concerned that the guarantee could push prices even further up. A renewed housing bubble could have mixed implications for buy to let investors. It could make it prohibitively expensive to expand your portfolio but, perhaps more pertinently, it could ultimately mean that fewer people are able to afford to buy (particularly given that the guarantee is only set to be on offer for three years), with more people therefore being pushed into the private rented sector.

2. Rent changes
Conversely it had initially been thought that the guarantee could, in the short term, suck demand from the private rented sector as many of those currently being forced to rent instead bought a property. More first time mortgages are now being provided than at any time since 2008, but rents have remained very high. Indeed, according to LSL Property Services rents in England and Wales are now at a new record average of £757 a month. This is partly because the guarantee only helps those who have a deposit of at least 5 per cent, and partly because the scheme does not tackle one of the most fundamental issues in the housing market: a lack of liveable stock. Furthermore, there is evidence to suggest that increased property prices actually drag up average market rents.

3. Boosting stock
On that front, the first part of the Help To Buy scheme could prove interesting. Assistance in the purchase of new-build properties is intended in great part to encourage homebuilders to increase the total housing stock and, while this is yet to have anything but a negligible impact, more concerted efforts to build more homes could certainly bring down rents. It is worth remembering, though, that this seems far-fetched in the current climate, and that it would require vast swathes of new properties to be built in order to knock rents off their record perch.

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