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Help to Buy scheme beats forecasts but may raise house prices

The new Help to Buy scheme has exceeded expectations only two months after it was introduced with approximately 4,000 people all reserving homes under the scheme.

The Help to Buy scheme was introduced to help more people get onto the property ladder and, in turn, boost the housing market in the UK. More than 500 buyers have been reserving homes under the government scheme each week and the interest has only increased in the last two months.

The scheme was first introduced in April to boost the housing market, offering existing home owners an interest free loan to purchase a new build property. Those who wish to buy a home need only raise a deposit of 5% of the total value of their new home and the government will allow them to borrow a further 20%. The largest loan available is £120,000 and borrowers can put a deposit down on homes worth up to the cost of £600,000. Once the property is sold, the loan must be repaid.

However, UK house prices have risen by 0.4% according to figures from Halifax and the annual rate of growth is only increasing. In fact, the rate of growth is the highest it has been in over two and a half years which has caused some people to place the blame on the Help to Buy scheme.

Halifax is one of the lenders offering Help to Buy mortgages and they have reported a significant increase in house prices over the past year. May 2012 saw the average house price sit at £160,906 whereas May 2013 figures show the average house price as being £166,898; an inflation of 3.7%. Although house prices have risen, they are still low when compared to previous years.

Although house prices have risen dramatically, it has not deterred new buyers from stepping onto the housing market. There has been a 15% increase in the number of new buyers getting on the property ladder and many lenders are becoming more willing to offer high loan-to-value mortgages. There were 19,000 first time buyers in March but this figure increased by 3,000 during April.

Although the Help to Buy scheme has allowed many more people to get onto the property ladder, it may also have contributed to the increase in house prices. It is thought by many lenders that the more demand there is for housing, the more sellers will take advantage of this. The rest of the Help to Buy scheme will be introduced in 2014 and will involve the government guaranteeing mortgages.

Buying Houses since 1972