With the government under pressure to help people struggling to buy their first home, experts are urging Jeremy Hunt not to repeat old mistakes – as new statistics reveal the long-term impact of the controversial Help to Buy loan scheme.
Figures published today show that 387,195 properties were bought using the Help to Buy loan scheme, of which 328,346 were purchased by first-time buyers.
The government-backed scheme, introduced in 2013, gave first-time buyers equity loans of up to 20pc of the purchase price – 40pc in London – to help them afford a new build home with only a 5pc deposit.
But the scheme has been heavily criticised for pushing first-time buyers to take out loans they later found they could not afford.
Karen Noye, of wealth manager Quilter, said: “Its design, which allowed the government to gain a share of the property’s appreciation, meant that as house prices increased, so did the government’s profit from these loans. This aspect became particularly burdensome for homeowners when they reached the end of their five-year interest-free loan period.
“With the interest rate initially set at 1.75pc and then increasing annually based on inflation, many homeowners faced escalating costs, adding financial strain to what was initially an assistance program.”
Thousands of first-time buyers are now in arrears after purchasing their home with Help to Buy, Telegraph Money revealed last month.
By increasing demand for new homes, the scheme may have also contributed to a rise in house prices, “making the market less accessible in the long run,” Ms Noye said.
She added: “The government may once again announce a housing scheme next week in the Autumn Statement and hopefully they can learn lessons from this more than decade long experiment.”
A stamp duty cut or an increase in the Lifetime Isa cap are two of the policies Mr Hunt could implement to help struggling millennials get their foot on the property ladder.
The Chancellor is looking at increasing the property price cap on Lifetime Isas, which has been stuck at £450,000 since 2016. Young savers are currently fined when they breach this cap, despite soaring house prices.
Last month it was reported that the government is considering extending its mortgage guarantee scheme, which lets buyers take out a mortgage with just a 5pc deposit.