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Help to Buy scheme extended – what do you need to know?

  1. 22 February 2021
  2. By Jeremy Greer

Reallymoving looks at the latest extension of the original Help to Buy scheme until the end of May 2021, how this is affecting buyers and what comes after with the revised programme.
 

 



March 31 2021 isn’t only a crucial deadline with regards to the Stamp Duty holiday, it was also supposed to be the end of the Help to Buy scheme in its original format.

However, in a move that will give hope to the many people banking on a stamp duty holiday extension, the government recently revealed that the deadline to complete the purchase of a home under the current Help to Buy scheme in England has been extended from March 31 to May 31 due to Covid delays.

Here, we take a look at why there is an extension and what the changes are to the Help to Buy scheme.

What is happening?

With Covid delays potentially putting more than 16,000 sales at risk, with buyers facing large bills if their purchases were to fall through at the last minute, a two-month extension has been announced by the government. Some fear even this extension still won’t be enough and that a further extension might still be required.

Construction of newly-built homes, the only kind of property to qualify for the scheme, have been stalled by as much as eight months because of the pandemic.

Data obtained from Homes England through a BBC Freedom of Information request revealed that, as of the end of January, there were 16,691 sales still to be completed under the current scheme.

The new-build homes have been delayed because, in many cases, construction workers have had to self-isolate, supply lines have slowed, overseas labour may have needed to quarantine, and some traders have been furloughed. If their properties are not built in time, buyers using the scheme face considerable losses of thousands of pounds.

The latest government extension – there have been two before – provides homebuilders with an additional two months to complete developments and means purchases can be completed by the end of May.

A spokesman for Homes England, the non-departmental public body that funds new affordable housing in England and which replaced the Homes and Communities Agency in January 2018, commented: “This measure provides certainty to developers to build out homes delayed and further protects customers whose purchases have been delayed by Covid-19.”

He said the move to extend the deadline was to make sure ‘those buying a home through the scheme are not disadvantaged by circumstances beyond their control’.

However, Homes England, which presides over Help to Buy as part of its remit, says the latest extension will be the final one. 

“It’s been confirmed that this will be the final extension of the scheme and advisers now have a key role to play in helping buyers to understand what these changes mean for them.”

With this in mind, there are justifiable worries that the many thousands of transactions which need to complete before the end of May won’t complete in time, leaving many buyers still facing the loss of thousands of pounds.

What is changing?

Help to Buy is continuing after the latest deadline, but in a different format. From April 1 2021 to March 2023 it will be concentrated on First Time Buyers only, with regional caps in place.

The price caps are as follows:

North East - £186,100
North West - £224,400
Yorkshire and The Humber - £228,100
East Midlands - £261,900
West Midlands - £255,600
East of England - £407,400
London - £600,000
South East - £437,600
South West - £349,000

First Time Buyers keen to use the new Help to Buy scheme have been able to reserve their new home using the programme since December 16 2020, but they cannot move in until April 1 2021 when the new version of the scheme officially begins.

The government has previously said there will be no further extensions once the March 2023 deadline for the revised scheme is reached, which would mean the scheme would have been in operation for a whole decade by the time it ends.

While this makes it one of the longest-running government housing schemes, its success (or otherwise) has been much debated.

After being introduced in 2013 by the-then Coalition government, it soon came to be seen as the flagship housing policy of the David Cameron-George Osborne era, and has since been extended in various ways by the Theresa May and Boris Johnson governments.

Figures suggest the Help to Buy equity scheme – the main part of a scheme which has many branches, included the Help to Buy ISA and Shared Ownership - has enabled 278,000 people to receive a loan from the government to help pay the deposit to purchase a newly-built home.

However, critics would suggest this accounts for only a relatively small number of new homes each year and that the scheme has been most utilised by those who could have bought a home without it. A report from the National Audit Office (NAO) in June 2019 found that one in 25 of participants had household incomes of over £100,000. The restriction of the new scheme to First Time Buyers only may at least in part be a reaction to this.

We also previously analysed the problems being faced by the earliest Help to Buy adopters as they started to pay back the interest owed on their loans and battled issues such as negative equity.

That said, there are signs that the government’s housing schemes remain popular among First Time Buyers, which could help sustain demand for the new scheme.

Our figures show that more First Time Buyers than ever before are using government schemes to help them onto the housing ladder. This comes as rising house prices and the large deposits required by lenders – which haven’t really been affected by Covid – continue to narrow their options.

The data shows that 17.2% of First Time Buyers used either a Help to Buy Equity Loan or Shared Ownership to step onto the housing ladder in 2020, in comparison to 15.4% in 2019 and 13.1% in 2018.
Nevertheless, it’s Shared Ownership – a sort of halfway house between owning and renting - that is the most popular option, accounting for 10.1% of all First Time Buyer transactions in 2020, compared to 7.1% opting for a Help to Buy loan.

The new scheme is designed to help those buyers who need it most, but would-be purchasers are being warned that very strong demand for Help to Buy properties can mean they come attached with an asking price ‘premium’, raising the chances of negative equity if house prices decline. Values have held up remarkably well during the pandemic, but the end of the stamp duty holiday and other variables could start to change this.

Importantly, developers offering Help to Buy under the new version of the scheme will be required to sign up to the new Property Ombudsman, providing buyers with greater assurance of high building standards and sustainability.

What will Help to Buy’s legacy be?

It has proved divisive and controversial since it was introduced in 2013, and that is likely to continue to be the case now that the scheme in its original format is nearly at an end. If a large number of buyers do end up missing out before the deadline, and the government doesn’t offer a further extension, it could leave a sour taste in the mouth for many, particularly as construction delays are entirely out of the hands of buyers and – in recent times – many construction firms, too.

A further extension certainly shouldn’t be written off completely, particularly if there are still a sizeable number of completions waiting to happen as we reach the end of May.

For supporters of the scheme, Help to Buy has helped many people onto the housing ladder that might otherwise not have managed it. Critics, though, will point to the opposite – that it’s actually helped people who never needed a leg-up in the first place, and has left many with issues concerning interest repayments and negative equity.

The more restrictive Help to Buy scheme is likely to have its fair share of critics, too, but the stats suggest the scheme is still popular among consumers.
 

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