75 New Homeowners A Day
The Prime Minister, David Cameron has been defending the controversial Help-To-Buy scheme, stating publicly that the scheme is creating up to 75 new homeowners a day.
Over 2,000 first-time buyers have made offers on properties using the scheme and the Prime Minister is rubbing his hands with glee because there is a dark secret behind the incentive.
More than £369 Million (GBP) has been lent to new home owners, making the loan figures average £155,000 (GBP) per person. Wages will likely rise with inflation and so will mortgage rates, doing little for the financial security of working homeowners who will be trying hard to pay off the percentage stake in their property that is owed to the Government.
Mr Cameron insisted that the state-backed loans are helping hard working responsible people purchase residential property to live in, and he also dismissed fears over a new housing bubble and taxpayers helping the wealthy middle-classes as nonsense.
What he did not say was what the prospects are likely to be, for people buying property now using the Help-To-Buy scheme, in a few years time.
The Prime Minister insisted that there is enough evidence to suggest the Help-To-Buy scheme is supporting responsible lending, rather than encouraging people to overextend themselves.
New applicants have requested to borrow an average of £155,000 (GBP) for residential properties, however, a typical residential property is valued at an average of £247,000 (GBP).
The preliminary figures for the Help-To-Buy scheme suggest that the Government incentive is massively over-subscribed. A month after the second phase launch was publicly announced, 2,384 people made offers on residential properties worth £365 Million (GBP) in mortgage loans.
2384 people taking out Help-To-Buy Loans x Average loan value of £155000 x 20% Government backed deposit = £369,520,000 x 20% = £73.9 Million (GBP) stake in the UK property market to date and this figure is increasing by 75 new applications per day worth £31,000 each, so by the end of 2013 the Government will have an additional £13 Million stake.
That is a total of £86 Million (GBP) worth of UK property that will be fractionally owned by the Government by the end of the year. That should help to offset the national debt a little shouldn’t it?
Despite continued fears of another property price boom or the occurrence of another housing bubble, the Chancellor of the Exchequer, George Osborne is considering using state guarantees to increase the number of mortgages on offer to property purchasers.
Experts predict the Help-To-Buy scheme will increase the number of residential property sales and may help to push property prices up, however, the incentive is drawing criticism from coalition MP’s including the current Lib-Dem Business Secretary, Vince Cable, for creating the threat of a housing bubble.
Both the Chancellor and the Prime Minister have dismissed the property price boom as an absurdity as residential property prices are still 25% below their price peak reached in 2007/8 and mortgage availability was less than the present day.
Mr Cameron argues that reviving 95% mortgages will massively increase the size of the market, and it will….for the Government!
If the Government are underwriting these mortgages then they are legally allowed to place a second charge on the mortgage, giving them a stake in the property being purchased, who said fractional ownership was dead?.
It has not been widely publicised about what will happen if these loans are not repaid to the Government by the due dates, however I see the situation like shared ownership, trapping people in property because they will be unable to afford to buy out the Government stake in their homes.
This scheme could prove to be a nice little earner for Mr Cameron and his buddies, after all, who needs to build more social housing when they can get it for just 20% of the real values in 5 years time.
If the Help-To-Buy scheme was a lease option deal on a single residential property, then it would be the best property investment deal of the century.
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