The Help to Buy equity loan scheme has divided opinion – with firm supporters and detractors on either side – since it was first introduced in April 2013 as the flagship housing policy of the Coalition administration, led by former Prime Minister David Cameron and former Chancellor George Osborne.
The Help to Buy scheme was originally set to end in April 2021, with a new version of the scheme (for First Time Buyers only) running from April 2021 to March 2023. Under that plan, sales transactions would need to have been agreed by December 2020 to take advantage of the scheme.
However, the government has now announced an extension to this deadline because of the construction delays caused by Covid-19.
What does this mean for buyers?
To ease pressure on housebuilders, the government’s Help to Buy building deadline has been pushed back by two months to help thousands of families move into their new homes despite interruptions in building these new homes because of the pandemic.
The government says the deadline for the homes to be completed in order to comply with the equity loan scheme has been extended to ‘ensure customers do not miss out if there has been a delay in construction due to the pandemic’.
Rather than the new homes needing to have been finished being built by the end of December – as was the original plan - the extension means the deadline will now move to 28 February 2021, ‘helping thousands of customers to get the keys to their new home’.
However, the deadline for the legal completion of the sale will remain the same – namely March 31 2021. That said, the government has put in place an extra measure for those existing customers who have experienced severe delays as a consequence of Covid-19.
Homes England, the non-departmental public body that is charged with funding new affordable housing in England, will work with those who had a reservation in place before 30 June to examine their situation and look to provide an extension where necessary. If this is needed, they will have until 31 May 2021 to legally complete.
In its announcement, the government also confirmed that the new Help to Buy scheme, which will replace the current scheme, will still come into place from 1 April 2021 and run until March 2023 as planned. There are no proposals for further extensions.
The new scheme, restricted to First Time Buyers only – to bat away the criticism from some that Help to Buy has been helping more buyers further up the ladder than was perhaps intended – will implement property price caps to support people into their first home.
The refusal to commit to extending the Help to Buy scheme beyond March 2023 may be an attempt by Boris Johnson and the government to establish their own housing agenda. There has already been some evidence of this – with the proposal of the First Homes initiative
and a number of ‘radical’ planning reforms outlined recently.
“This government is committed to helping a new generation to realise their dream of home ownership, and since 2010 we’ve helped more than 640,000 families into home ownership through our support including Help to Buy and Right to Buy,” Housing Minister Christopher Pincher, the MP for Tamworth, said.
“This announcement will help provide certainty and assurance for Help to Buy customers whose new homes have been delayed due to coronavirus and affirms the government’s commitment to helping more people to own their own home.”
The announcement applies to the scheme in England only, which is managed by the UK government, and doesn’t have a bearing on similar schemes in Scotland, Wales and Northern Ireland.
How many buyers has the Help to Buy scheme helped?
The government says the Help to Buy equity loan scheme has helped more than a quarter of a million people to buy a home since the scheme began on 1 April 2013. Since that date, some 272,852 property sales have been completed. Over the course of seven years, that equates to just under 39,000 homes each year – which some would argue is still quite a low number relatively speaking.
Help to Buy did step in, though, at a time when higher loan to value mortgages were off the table thanks to the legacies of the global financial crisis. When nearly all lenders weren’t offering 95% mortgages, the Help to Buy equity scheme provided a low-interest loan towards a buyer’s deposit, with customers only needing a 5% deposit, and the government lending up to 20% of the value of the home (up to 40% of the value for those purchasing in London).
Critics, however, point to the issues faced by the early Help to Buy adopters
, while our own data (collected from 41,000 First Time Buyers using our moving services) last year revealed First Time Buyers purchasing a new build home with Help to Buy in England paid more for new homes than those who didn’t use the scheme
First Time Buyers using the Help to Buy equity loan scheme paid an average of £303,450 – which, when calculated at a postcode area level to account for regional variations, meant the so-called Help to Buy Premium paid was 10.3%.
In February 2019, meanwhile, our data found that First Time Buyers using the government’s Help to Buy Equity Loan scheme paid 12% more than those buying new homes without the scheme.
The debate has always been whether the scheme has helped buyers or artificially inflated the market, and our findings would veer more towards the latter – although it can’t be denied that the scheme has helped a sizeable chunk of people onto the ladder.
What was the reaction to the Help to Buy extension?
The picture was mixed, with The Telegraph’s property editor Isabelle Fraser saying the government had ‘doomed First Time Buyers with its pathetic Help to Buy extension’.
In an opinion piece on the matter
, she argued that the scheme has major flaws but an extension of the current system by a year or so ‘could have filled the vacuum created by nervous banks withdrawing from the market’.
She added: “In April 2021, regional price caps will be brought in, which will exclude tens of thousands of people, including anyone buying a larger property in a more affordable area. This is a kick in the teeth to the desperate First Time Buyers who were being told by the government that they could get on the ladder if they followed the right steps.”
“With a recession on the way, and a winding-up of furlough that will hit young people hardest, First Time Buyer levels are likely to crash. The government’s pro-home ownership rhetoric – at the cost of promoting a sustainable rental sector – is hollow if it won’t support young buyers when they really need it,” she concluded.
Craig Hall, head of broker relationships and propositions at Legal & General Mortgage Club, said Help to Buy had been a staple of the new-build housing market for the past seven years and had supported thousands of First Time Buyers onto the ladder.
“However, Help to Buy was only ever launched as a temporary solution,” he said. “Developers faced a deadline at the end of this year to complete properties eligible for the current scheme, before a new version of Help to Buy, limited to First Time Buyers, is launched in April 2021. The extension to Help to Buy will give developers much more certainty around which planned sites will still be eligible for the current scheme. This will be particularly important as many housebuilders will be revising their timetables for completion in light of the impact of the Covid-19 lockdown.”
Mark Evans, chief operations officer of developer London Square, which has six sites across London, said the government’s move was welcome news, but added that the company was disappointed that the extension isn't for longer than two months.
“The past few months have been challenging for home buyers and giving them more time would have been helpful,” he said.
Alex Rose, director of new homes at property website Zoopla, also called for a longer extension. “The devil is in the detail, and many would argue that a two-month extension might not give housebuilders enough time to meet these build deadlines.”
He added: “Residential construction is currently operating at between 60% and 85% of normal output. Many developers are behind with their build schedules. While we’d hoped for a more encompassing extension, every ounce of support helps at this stage.”
Since the coronavirus struck, there has been a surge in interest for Help to Buy as banks have largely withdrawn low-deposit mortgages because of the risks they pose at present.
The scheme, which only applies to new builds, can also be used alongside the stamp duty holiday recently announced by Chancellor Rishi Sunak
, which means buyers pay no stamp duty on homes worth up to £500,000 until 31 March 2021.
But those looking to use the Help to Buy scheme who aren’t First Time Buyers, or who don’t want to get caught out by regional price caps, must act quickly if they want to take advantage of it – even in spite of this two month extension.