Earlier this week saw the Rt Hon George Osborne MP enter parliament to deliver his fourth budget as Chancellor of the Exchequer.
Now, as an accountant this brings a level of excitement which I can only describe as being akin to that which a child feels as it rides the monorail into Alton Towers for the first time. The Chancellor takes out the famed red box, eyes widen, palms get sweaty, your heart beats a little faster, and the wife begins to question once again if a psychiatric assessment may be in order.
This budget was a unique one for me in that it is the first one I have approached and analysed from the perspective of an IFA as well as an accountant, and whilst my colleagues around me were focused on the new tax rates and allowances, business support schemes, anti avoidance measures, and which bakery product would be singled out for media attention this year, I was looking at pensions, wealth management and personal financial planning.
There was a clear ‘headline’ announcement for me on Wednesday – The Help to Buy Scheme. Or rather the Help to Buy Schemes. Both of them resonated a major issue that keeps coming up time and time again with the clients I am working with – just how do people get on the property ladder given the highly restrictive requirements of mortgage providers these days?
Someone shared a quote with me recently which I think sums up the situation perfectly:
‘The dream of the older generation was to pay off a mortgage, the dream of the younger generation is to obtain one’.
I have seen lots of occasions of late where good, financially sound, and capable people have been refused mortgages or been priced out of the market by the excessive levels of deposit required. The decisions are often cold and process driven too – a ‘computer says no’ situation if you will. It’s a strange thing to get used to at first, as despite looking like an evergreen 25 year old, I am in fact somewhat older and part of a generation where when it came to buying homes it was a commonly held belief that everyone who wanted a mortgage and was prepared to work would get one. It was really just a question of which provider you would approach with your need.
As a result of this, the announcement that two new schemes were being introduced to help combat this issue and assist people both onto and up the property ladder was most welcome.
Now, it is easy to take the announcements during the budget speech on merit, but it is also important to remember that the budget speech is just that – the budget speech. It is not the actual budget, which is hundreds of pages long and full of small but significant points, caveats and conditions. Nonetheless, until there has passed enough time to explore and assess these fully over the coming weeks, it is certainly worth exploring the headline points of the schemes announced. A sideline point perhaps, but one I am always keen to make clear.
Whilst I accept I have digressed a little in getting here, lets take a look at them now.
Scheme one takes the form of an equity loan that is used to make up the short fall in a deposit for a mortgage. It is available on new build properties only, to a maximum property value of £600,000, and in order to qualify an applicant must be able to contribute 5% of the deposit themselves. It is an expansion of the existing ‘First Buy’ scheme and is available to all – not just first time buyers! The government will provide up to 20% of the value of the property to use as a deposit in the form of an equity loan with the remaining amount being arranged through the traditional method of borrowing funds from a mortgage provider. The loan can be repaid at any time before, or upon, the sale of the home and is interest free for the first five years. In subsequent years, lending fees are charged at 1.75% escalating at RPI + 1% per annum from year six. The scheme is to run from 1st April 2013 and will run for a guaranteed minimum period of three years.
Scheme two takes the form of a government backed mortgage guarantee aimed at encouraging lenders to offer better access to low deposit mortgages. This option is available on both new build and existing properties to a maximum property value of £600,000 and built upon the workings on the current ‘New Buy’ scheme. Again, applicants will need to be able to provide at least a 5% deposit themselves. The government will guarantee the amount above 80% loan to value that is not covered by the applicants deposit. This option is available from 1st January 2014 and will run for a minimum of three years.
All in all, anything that helps the property market more accessible as well as stimulating activity in the construction industry has to be a good thing. It will be interesting to see if there is any small print hidden away in the actual budget documents which will change initial thoughts on the concept of the schemes, but here’s hoping the intentions carry through.
Only time will tell, but I for one am hopeful that the developments will assist further in helping those who aspire to own their own home achieve their dream and ambition.
Daniel Eatch FCCA DipPFS
Dan is a Chartered Certified Accountant, Independent Financial Advisor, Business Development Manager and self confessed ‘Client Service Addict’ at Knowles Warwick Financial Services Ltd. For any aspect of Business, Accountancy, or Personal Financial Planning support, feel free to contact Dan on 0114 2747576 or at email@example.com.
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