Chancellor George Osborne hopes the flagship policy, which was announced in his most recent Budget, will boost the UK’s lacklustre housing market, and in turn strengthen the economy.
Under the new legislation, the Government will guarantee up to 20 per cent of the mortgage so that buyers who would not otherwise be able to afford the initial deposit can get a foot on the housing ladder.
However, if the buyer was to default on their loans, the taxpayer would have to cover the costs.
Understandably, this has caused controversy. Critics of Help to Buy say it will only inflate a housing bubble as prices will be pushed artificially high, adding more debt to the system.
The scars still run deep from the last bubble in the housing market, which had been one of the major contributors to the global financial crash in 2008. Our data shows the extent to which UK property investors lost out during that time.
Performance of index over 20yrs
Source: FE Analytics
Because of that experience, critics of Help to Buy say the outcome of the policy will be very similar.
Their argument is along the lines of Gordon Gekko’s, a character from the film Wall Street, who sarcastically commented: "Gee whiz, we all know the prices of houses always go up, right?"
One FE Alpha Manager – who wished to remain nameless – went as far as saying it was the "greatest Ponzi scheme" in living memory.
Danny Cox (pictured), head of advice at Hargreaves Lansdown, says that although the legislation is certainly short-sighted, first-time buyers who fit the criteria should take advantage of it.
"The Help to Buy scheme comes in two parts, the second of which we haven’t seen yet," he said. "The first part is that the Government will loan first-time buyers with a sufficient credit rating and who can afford 5 per cent of the deposit up to a further 15 per cent, effectively giving them a 20 per cent deposit."
"The second part is that they will provide loan guarantees, but that doesn’t come in till January."
"The scheme for those applicable, especially as rents are soaring and it is more expensive on a month-to-month basis to rent, is a great help."
"However, the criticisms of the scheme are justified, as it will eventually push prices up and up. If they do keep going up, then at some time they are going to have to equalise with earnings."
"If buyers want to get on the housing ladder, it is a really good idea, as they are getting additional support."
"However, for those who cannot afford the initial 5 per cent deposit or haven't got the right credit rating, it is just going to make it harder to buy further down the line."
"There are elements of quantitative easing here, as by supporting markets artificially there will be side-effects such as inflation; in terms of the Help to Buy scheme, it will lead to house price inflation," he added.
Patrick Connolly (pictured), head of communications at AWD Chase de Vere, says that although it is controversial, he feels that there are plenty of positives aspects to Help to Buy.
"What we have here is a balancing act," he said. "It is becoming increasingly difficult for first-time buyers to get a foot on the housing ladder, and that is particularly true in and around London.""What has been the case is that first-time buyers have had to wait a significant length of time before they can get on to the property ladder, or they have had to rely on help from their parents or other family members."
"So really, any opportunity to give people a chance to buy a house should be good idea, but as people have rightly pointed out, it will end up pushing prices higher in the future. Basically, in trying to help the problem, it could be making it worse."
"No asset’s price ever keeps going up and up, and that is certainly the case with residential property. It has been an area of the market that has done very well over periods of time, but then has also performed very poorly."
No matter what your thoughts are on the scheme, there are certainly managers benefiting from an uptick in the UK housing market.
One of these is FE Alpha Manager Luke Kerr, who has a high weighting to UK housebuilders. He recently told FE Trustnet he believes these companies will perform well on the back of the new legislation.
"Osborne’s Help to Buy scheme could turn out to be quite significant," he said.
"He has put a lot more money behind the idea than he has done with other policies, and if – that is a big if – the banks are prepared to lend, then it would really help the UK housing market."
"There is huge demand for housing, but the issue has always been the inability to pay the initial deposit; however, when the Government is offering an interest-free loan of 20 per cent, then that should change," he added.
He holds UK housebuilders Barratt Developments, Persimmon and Galliford Try as top-five holdings in his five crown-rated Old Mutual UK Dynamic Equity fund. All three of those stocks sit in the FTSE 250 index.
Kerr certainly seems to have made a good call. According to FE Analytics, Barratt Developments, Persimmon and Galliford Try have returned 47.35 per cent, 50.63 per cent and 26.19 per cent respectively, year-to-date.
The wider FTSE 250 index has returned 12.77 per cent over this time.
Performance of stocks vs index year-to-date
Source: FE Analytics
Kerr has managed his £295m Old Mutual UK Dynamic Equity fund since its launch in June 2009. Over that time it has been a top-quartile performer in the IMA UK All Companies sector, with returns of 124.73 per cent.
The fund requires a minimum investment of £1,000 and has an ongoing charges figure (OCF) of 1.73 per cent.
