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Could the Help to Buy scheme return?

  1. 26 June 2023
  2. By Lisa Hall

The Help to Buy equity loan has the potential for a return after being off the table for new applicants since 2022. After the scrapping of the original and controversial First Time Buyer scheme, what positive shifts could bring it back?


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What was the Help to Buy scheme?

Help to Buy started in 2013 to help First Time Buyers purchase a property if they're struggling to build up deposit savings. By boosting what buyers have saved up, the government loan was there to make climbing the property ladder easier.

All you needed was to save a minimum of 5% of the purchase price of a new build property. You would then need to arrange a repayment mortgage of at least 25%. After this, the government would lend you up to 20% of the rest of the price (40% in London). The remainder would be borrowed from a mortgage lender.

So, if you bought a property worth £200,000 outside of London, you could borrow £40,000 with the Help to Buy scheme. It was also appealing because it offered an interest-free equity loan for the first five years of the mortgage.

However, there were some rules and requirements that made it so that Help to Buy was not as helpful as it seemed.

 

Why did the Help to Buy scheme stop?

The Help to Buy scheme was officially closed to new applicants outside of Wales in October 2022 with no access to applicants since March 2023.

There were many controversies around the Help to Buy equity loan scheme that drove it out of the market.

One of the biggest issues lay with the maximum property price you could access with the Help to Buy equity loan. Property prices were capped by region with places like the West Midlands reaching £255,600 and £600,000 in London. This would be a problem for those who wanted to live in more expensive parts of the UK. It may be because those areas are their preference, where their careers are, or where friends and family live.

With a cap that doesn't match the average property price in those expensive areas, buyers would still run into obstacles. For example, as of last year, new build home prices averaged at £425,047. To benefit from Help to Buy, buyers would need to live in more affordable northern areas or accept below average homes.

These caveats were problematic to many buyers. Especially as Help to Buy competed heavily with other saving to buy for a home schemes, such as the Lifetime ISA which allows you to save significantly more.

 

What changes could come with an improved Help to Buy?

The government may reintroduce Help to Buy. However, some experts are uncertain if it will remain the same or be altered.

Things that savers would benefit from with a new and improved Help to Buy could include:

The removal of the new build rule.

Previously, Help to Buy equity loans were exclusively usable with new builds sold by a Help to Buy registered homebuilder. Involving options for existing properties with a new scheme would expand the access for First Time Buyers. This is especially true as new builds are typically more expensive than older properties.

A price cap increase.

Price cap increases would also greatly improve the usability of Help to Buy. With the last price caps, First Time Buyers may have had fewer affordable property choices. This could very easily have pushed them away from their preferred location.

Caps can also be significantly higher with other saver options, such as the previously mentioned Lifetime ISA.

A fixed repayable amount.

To pay off the equity loan is not as simple as it sounds. If your property value increases, so will the amount you owe. So, if your equity loan amount was 20% equity loan on a £200,000 home, your loan would have been £40,000. But if your house’s value increased to £220,000, you’d owe £44,000.
 

It isn’t yet clear what or if there will be changes to Help to Buy should it return. 

In the meantime, if you’re a First Time Buyer looking to step onto the property ladder, you can calculate what you can afford using our moving cost calculator.

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