Help to Buy Scotland runs out of cash

by Mark Hordern, GSPC

20 May 2015

Help to Buy Scotland - the scheme that contributes up to 20% of the purchase price of a new build home - has run out of cash. New applications will only be accepted up to next Tuesday, the 26th May.

The news comes just days after the Scottish Government released figures showing that the scheme had already supported 5,000 new home sales worth £1 billion and there are concerns that - without a replacement scheme - housebuilding will be hit.

Builders had attributed a recovery in new home sales in part to the impact of Help to Buy Scotland. That, in turn, had triggered new building, creating both new homes and jobs. But builders frequently plan three years ahead, often longer, so doubts now about the future of the scheme could affect the number of new homes built in 2018.

In fairness, the mortgage guarantee version of Help to Buy - under which the UK government provides a guarantee to the lender for 15% of the loan value, provided you have a 5% deposit - is still in place and will run until January 2017. So buyers, of established as well as new build homes, can still get a 95% loan to value mortgage.

But this version is not aimed at triggering new home building.

So, will the Scottish Government come up with a new version of the scheme - ideally one that gives builders the confidence they need to plan ahead?

South of the border, an equivalent scheme has been extended to 2020. But perhaps that is possible because it is significantly less generous in one important respect than the Scottish equivalent. Help to Buy Scotland provides up to 20% of the purchase price of a new build home (up to a property value of £250,000). There is no obligation on the buyer to pay interest on that loan or even to repay it before the property is sold. It is effectively free money for as long as you own the property.

In contrast, south of the border the buyer is expected to start paying interest on the 20% contributed by the government after five years and, while that interest rate starts low (1.75%), it will increase steadily every year from then on. In time, it will be to the advantage of the buyer to pay off that loan because it will become more expensive than a normal mortgage.

In effect, the UK government can sustain the English version for longer because they have made it less attractive to buyers. Builders have greater certainty about the duration of the scheme, but at the cost of a package that has a smaller benefit in marketing terms.

No doubt the Scottish Government will come up with a successor to the current Help to Buy Scotland scheme, but making sure that it is durable over the timescale that builders need will involve a delicate balancing act between the resources available and the generosity of the package made available to buyers. From the point of view of builders, and anyone else who wants to see an increase in housing supply, the sooner that balance is agreed and announced the better.

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