In Depth

Philip Hammond ditches help-to-buy scheme

Chancellor ends George Osborne's flagship policy, saying it has 'successfully' achieved its 'specific purpose'

Chancellor Phillip Hammond has scrapped the help-to-buy mortgage guarantee scheme introduced by his predecessor, George Osborne, three years ago.

The flagship policy, which encouraged lenders to offer loans to first-time-buyers with minimal deposits, had "successfully" achieved its "specific purpose", said Hammond in a letter to Bank of England governor Mark Carney.

He added that more than 30 commercial lenders now offer 90 to 95 per cent loans without any guarantees from the government.

Help-to-buy was introduced in 2013, when the housing market was mired in a post-crisis slump and risk-averse mortgage lenders were demanding deposits of at least ten per cent, which many younger buyers could not afford.

The scheme guaranteed around 15 per cent of the loan was covered in the event of foreclosure, making up the bulk of any losses if the bank was forced to repossess and resell cheaply. As a result, they brought 95 per cent mortgages back onto the market.

Help-to-buy was already scheduled to finish at the end of this year, but the Daily Telegraph says experts had "called for it to be replaced amid concerns… the market for first-time buyers is already going into decline".

Hammond said: "It is important to note that the end of this particular scheme does not diminish in any way the government’s commitment to supporting those looking to get on the housing ladder".

However, there are concerns that with 95-per-cent products being pulled already as lenders take a more cautious approach in the wake of the Brexit vote, the decision will impact competition.

A spokesman for personal finance website Moneyfacts said: "A drop in product availability could mean less competition, which is bad news for anyone waiting for interest rates to fall further still."

The policy was distinct from government help-to-buy equity loans, which offer first-time buyers of new-build properties a government loan of up to 20 per cent to top up their deposit of as little as five per cent.

As this scheme means only 75 per cent of the property value needs to be borrowed from the bank, it gives access to far lower rates.

It has been extended to 2021 and will continue under Hammond, along with help-to-buy Isas that encourage saving for a house deposit.

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