December 20th, 2013. Ben Lloyd
Alternative finance overshadows Help to Buy scheme
If you’ve been paying attention to the news recently then you have probably heard of the government’s new Help to Buy scheme. News reporters tell us all about how great it is and how it is helping thousands of people but what does this scheme really entail? And is it as successful as reported?
Help to Buy
The Help to Buy scheme provides first-time buyers and home movers with an equity loan of up to £600,000 with the payment of a 5% property deposit. The government will pay up the equivalent of 20% of the value of a home to supplement a mortgage and help buyers who are struggling to get onto the property ladder. These buyers will not have to start repaying this loan for 5 years.
Help to Buy vs. other finance options
In 5 months, ending in September 2013, the government paid out a whopping £208million of equity guarantees yet this large amount was greatly overshadowed by alternative lenders and forms of finance. According to the West One Bridging Index, during the same period of time, short-term secured loans and bridging finance from private lenders provided an enormous £878million in gross lending.
Help to Buy has helped thousands of people to purchase their own property, but due to strict rules on the type of property borrowers are allowed to purchase, eligible homes are in short supply. Despite high demand properties simply cannot be built quickly enough.
Property developers now blame this on the lack of building finance available to them for vital conversions, renovations and new developments. This is where alternative lenders step in. Short-term loans or bridging finance are giving property professionals the chance to bring their project to life.
In the year running up to November 1st gross bridging loans totalled £1.9billion. But of course this is only a short term solution that must be replaced by mainstream finance eventually.
Thanks to both forms of finance working simultaneously together the property market is finally improving once again. More homes are becoming available and property companies are receiving liquidity, supporting SMEs and high street lenders.
Bridging loans and short-term finance
This form of finance is used for borrowing against the value of an asset rather than the purchase price. It is used to help meet transaction deadlines or for raising cash by securing debt for multiple properties. It is an alternative source of finance when a traditional mortgage or loan is not available. Bridging loans can be obtained within 48 hours of application and therefore they are a quick and short notice form of finance.
Alternative finance is overshadowing the Help to Buy scheme for now but every little helps; and let’s admit it, £208million is still a lot of money. If you are unsure about your finance options then hire the services of a finance broker. They’ll tell you all you need to know and find you the best deal for your money.
Article By Ben Lloyd
December 20th, 2013
Ben is the Director and Co-Founder of the Pure Group and Managing Director of Pure Property Finance.
Following a career in Barclays, where Ben was in the real estate finance team for 8 years, he decided that the market needed a more forward-thinking type of commercial brokerage so founded Pure Commercial Finance (now Pure Property Finance), the first company within the Pure Group.
Ben has extensive experience across the real estate sector and has participated in over £2bn of real estate transactions during the course of his career.
Ben oversees the general strategy at Pure Group and works with the senior leadership team to drive the Group forward. Ben is also on the Executive Committee of FIBA.See more articles by Ben