So, here’s a fun fact that some of you may have missed. Wednesday was International Carrot Day. Admittedly, it’s not the most widely celebrated day in the calendar, but it did get me thinking about the old saying: carrot and stick.
Now, the government has dealt its fair share of carrots to encourage more people onto the property market, as well as a couple of sticks. However, the biggest carrot of all in recent years (in my opinion), has been the Help-to-Buy Equity Loan scheme, which has helped thousands of first-time buyers and second-steppers to move onto and up the property ladder.
However, this year will see many of the early adopters of the incentive in need of finding extra cash, with the 5 year interest-free period on the government equity loan expiring. Thousands of first-time buyers will need to find, on average, £100 – £200 extra to cover the interest charges, or look for alternative means of paying off the 20-40% loan.
Hopefully, many of those who are coming out of the interest-free period have budgeted for this, so the pain shouldn’t be too overwhelming. However, for those who aren’t fortunate enough to be able to pay off the loan in one go, the financial industry needs to step in to help advise these clients on their best, affordable options. Some have referred to the ending of the interest-free period as ‘a ticking time bomb’ – and to an extent, it is. This is the ‘bomb’ that will show us whether the Help-to-Buy Equity Loan scheme truly is sustainable in the long-run, particularly when considering increasing house prices and affordability vs. household incomes.
With forecasted interest rate rises from the Bank of England, as well as the increase in outgoings due to the extra cash needed now they’re out of the initial 5 year agreement, it is clear that there will be a few lessons to be learnt for some buyers and mortgage brokers. However, it will be the real test as to whether a carrot of this size is sustainable as a means to increasing home ownership, or whether we need to investigate other ways in which to continue the Help-to-Buy programme in the future.
It will certainly be an interesting 12 months as we see this play out, but hopefully seeing the scheme rolled out to its full extent will help to better inform incentive schemes in the future and help the industry-wide conversation on how to tackle the affordability issue faced by many aspiring home owners.
What do you think? Join the conversation below.