The two different phases of the Help to Buy scheme are both visibly improving access to mortgages for younger buyers and those with smaller deposits, according to the National Mortgage Index from Mortgage Advice Bureau (MAB).
Its January 2014 Index shows the Help to Buy equity loan scheme attracting a younger demographic, with aspiring buyers able to put forward a deposit of as little as £12,106 for a new build home thanks to government support.
Using data from more than 500 brokers and 800 estate agents, the Index also shows the average buyer deposit across the whole market fell in January as consumers took advantage of high loan to value (LTV) deals.
The typical applicant for Help to Buy equity loans in January was almost six years younger than the average homebuyer (31.6 vs. 37.2). With an annual income of £30,419, they earn 13% more than the average across the whole UK population (£27,000 – ONS) but 21% less than the typical homebuyer.
The average deposit for a Help to Buy equity loan was £48,789 in January – 17% lower than the average deposit across the whole of the market. This figure includes the government contribution of up to 20% of the purchase price, equivalent to £36,683 in January.
It meant the average buyer was able to put forward just £12,106 as a deposit for a new build home last month if they took full advantage of government support.
The growing availability of mortgage products at 90% and 95% LTV – including those within the Help to Buy mortgage guarantee scheme – saw the average buyer LTV hit 72% in January, up from 70% in December.
Better access to high LTV mortgages also meant the average buyer deposit was 11% lower in January than December. MAB says this is likely to be influenced by more options for those with small deposits to get a mortgage, and also by wealthier buyers having been active over Christmas while those further down the chain waited to move.
Average incomes and purchase prices also fell in January as monthly application numbers rose by 43% after the seasonal break.
The Index shows total applications in January were up by 44% year on year compared with a 33% annual increase in mortgage lending for the month. MAB says it suggests lending figures will remain strong in the months ahead as consumers continue to act on favourable conditions.
Ahead of the Bank of England’s latest inflation report, fixed mortgage rates fell across the board in January. Using data from moneyfacts.co.uk, the Index shows average two year tracker rates and fixed rates for two and three year products were at their lowest point since current records began over six and a half years ago in June 2007.
Andy Frankish, new homes director at Mortgage Advice Bureau, said: “Property prices and the supply of new homes are firmly established among the most pressing social issues of 2014, so it is high time we dispel the myths about Help to Buy and the equity loan scheme in particular. Developers have sprung into action which would not have happened without an injection of confidence. At the same time, annual price inflation on new build homes has averaged less than 2% over the last six months and has fallen consistently since September.
“Our Index data shows the equity loan scheme continues to have the biggest positive impact of any government housing initiative in recent memory. It is giving hope to the younger generation especially, and making the difference between buying in your early 30s or having to wait until nearer your 40th birthday.
“The level of deposit for a new build home is much more realistic thanks to government help, and we are also seeing 95% mortgages having an impact across the wider market. What we need to see is more lenders committing to support the new build sector, creating more choice for consumers and even more incentive for developers to fire up the kilns.”
