The government’s Help to Buy scheme hit the headlines again earlier this month following the news that the second phase, extending it to the second-hand market, has been launched three months earlier than originally planned.
This controversial scheme has been the subject of much debate. Some have questioned whether it would in fact kick-start home building under phase one while others have voiced concerns that the introduction of the second phase will cause substantial house price inflation.
Well, the first phase, which focused on enabling people to buy brand new properties does appear to have had some positive impact. The National House Building Council has seen a big increase in the number of property developers registering their intention to build new homes around the country.
So it would seem the government can put a tick in the box against the first objective – but what about phase two? The Royal Institution of Chartered Surveyors (RICS) has added its voice to critics of the scheme, warning that extending the scheme to second hand homes could increase the risk of a property bubble, in particular in London and parts of the South East.
Some 5.1 million Britons believe they will buy a house in the next 12 months and a third intend to use Help to Buy, according to some recent research by Santander. If all of these people follow through on their intentions, housing transactions will soar to five times their current levels.
Of course, this will also rely on lenders playing their part. So far only the Royal Bank of Scotland and Lloyds Banking Group are actively involved while Aldermore has committed to come on board in January. The other mainstream banks and building societies are currently holding fire – but if it takes off then will they be able to resist trying to secure a piece of the pie for themselves.
However this could all represent good news for intermediaries – but not without some strings attached. There is a great deal of uncertainty as to how competitive rates available on Help to Buy mortgages will be versus other deals in the market and so it will still boil down to the intermediary doing what they do best – shopping around to find the best deal to suit their individual client’s requirements.
I also think that the onus of ensuring would-be home owners truly understand the level of commitment they are making is still going to fall on your shoulders. You’re going to have to ensure that your client can genuinely afford not only the repayments, but also all the other costs associated with home ownership.
Research from the charity Family Action and Lloyds Banking Group’s Money for Life programme reveals that a many people are simply not prepare for how expensive it was to buy and maintain a home. A quarter said that removal costs were a shock, while a quarter weren’t prepared for the costs of buying furniture. 23% considered the cost of essential items such as cookers surprisingly expensive.
Worryingly, one in 12 had spent nothing at all on maintenance which could potentially impact their ability to make a claim on their household insurance. Your client can forget about a successful claim for storm damage if they’ve failed to take adequate steps to keep their home in good order.
So in holding your clients’ hands through the Help to Buy scheme or the normal mortgage process, don’t forget to make sure that insurance forms part of the educational conversation you’re going to have to have. It is vital that they budget for cover to protect the biggest financial commitment they’re ever going to make.
Kevin Paterson is managing director of Source Insurance
Twitter: @SourceInsurance
