In an effort to help first time home buyers, there had been a rumored home buyer scheme that would be announced near the release of the spring budget. The details were well discussed and there were those voicing for and against the scheme. The expectation was for an opportunity to assist home buyers with a lower deposit of only 1.0%. This was offered as a solution due to the difficulty of saving for a deposit, which has been reported as taking an average of ten years to do so. However, there were those that believed it would put homeowners at a greater risk of falling into negative equity especially if property values declined from the current higher prices.

The scheme has since disappeared from the rumor mill, and Jeremy Hunt did not discuss it when presenting his spring budget. It is assumed the scheme is no longer in consideration and has likely left many hopeful home buyers without a solution to help them onto the property ladder, but the worry of having a large number of first-time buyers declining at the same time into negative equity is no more.

Negative equity was a threat for the new homeowner with only 1% equity, but there could have been a greater threat to the housing market. With an influx of first-time buyers into the market assisted by the scheme, housing prices could reach new highs. It is already considered the current prices for property are beyond affordable for most working households. 

The difficulty in buying has put higher demand on rental properties. The cost of rent is higher than a mortgage payment in most cases, but even landlords are finding it harder to add to their portfolio which means higher demand and lower supply in both the rental market and the buying market. Housing is therefore becoming a greater issue for the UK when it was already considered to be at a near crisis level.

For those home buyers that were counting on the scheme to get them into their first home, the 1.0% deposit would have had higher interest rates than found with a non-scheme backed mortgage. A lower deposit would perhaps have helped as far as the required deposit, but with higher interest rates and elevated asking prices, affordability could have remained a threat and maintaining ownership through economic changes might have brought other financial stresses.

Rightmove, a property market online website, offered information for what an average repayment would be for a home buyer. They stated a typical first-time home buyer monthly repayment was currently £1,089 a month for an average five-year fixed 85% loan-to-value (LTV) mortgage, meaning the home buyer provided a 15% deposit. This is up from the same scenario repayment average for last year of £1,068. At a deposit of 1.0%, or a 99% LTV one could expect a higher interest rate and considerably higher repayment.

Despite the scheme, there would likely have been many still out of reach of a first-time home buyer purchase, for the downfall of a lower deposit is a higher interest rate. This is the same for other mortgage deals. The lower the ratio of the LTV, the lower the interest rate compared to if the LTV is higher which has accompanying higher interest rates. 

The same situation exists for remortgage deals. It is why homeowners with higher equity built into their property are usually offered lower interest rate deals. This is the same reason those with negative equity are unable to remortgage.

While the scheme could have helped home buyers with their deposits, higher repayments would have been the tradeoff. It is expected it would have only been beneficial to a small number of first-time buyers. What would be more helpful would be lower interest rates and lower house prices. As inflation lowers, the MPC should lower the standard base interest rate and lenders will offer lower rates. While house prices may still be high, and the average has risen in the last few months, there are creative ways home buyers are climbing onto the property ladder.

For instance, the DIY craze, fueled by social media, and the ability to purchase friendly easy to use products for upgrading a property in need of care has allowed first time home buyers to consider properties overlooked by other buyers. An older home could be repaired over time with the effort of a home buyer as time and funds allow. 

There are also many first-time buyers turning to family and friends to help them with their home purchase to pay the deposit and perhaps a greater percentage of deposit to bring about lower interest rate offers and in turn lower monthly repayments.

Meanwhile, without a new solution in place, first time buyers are facing a difficult time with expensive borrowing due to high interest rates, high house prices, and inflation which is making it more difficult to save for a deposit.