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The Help to Buy deadline is approaching – what happens afterwards?

  1. 24 November 2020
  2. By Jeremy Greer

Reallymoving looks at the impending end of Help to Buy in its current format, what is going to replace it and what the situation is for buyers until the deadline is reached.

The Help to Buy scheme in its original format, which has been helping people purchase homes since it was introduced by the Coalition government in 2013, is set to end in April 2021, with a new scheme (for First Time Buyers only, and based on regional need) running from April 2021 to March 2023 – when Help to Buy will wrap up entirely.

The scheme, has in its current format, helped many First Time Buyers (FTBs) onto the ladder who otherwise wouldn’t have been able to afford it. However, some argue that it has artificially inflated house prices, been unequal in its distribution and caused issues for the early adopters who are now starting to pay back interest on their loans. The hopes are that this new version of the scheme will remedy some of the issues highlighted by it’s current opponents, by closing the new scheme off to non-FTBs.

But what will the new scheme look like and how long do non-FTBs have left to take advantage of Help to Buy before it closes to them?

A new, more restrictive scheme

From April 2021, the Help to Buy scheme will be restricted to First Time Buyers and include regional property price caps to make sure the scheme ‘reaches people who need it most’. The new scheme will run until March 2023. The government has said this is unaffected by Covid and there will be no further extensions once the March 2023 deadline for the revised scheme is reached.

The new Help to Buy Equity Loan (2021-2023), is set to replace the existing scheme on 1st April 2021. The current scheme enables both First Time Buyers and existing homeowners to benefit from Government-backed loans to purchase a new-build home with a much lower deposit. The new scheme, limited to First Time Buyers, must still be used towards buying a new-build home only.

First Time Buyers will still be able to borrow up to 20% (or 40% in London) of the cost of a newly built home, with the buyer continuing to pay a 5% minimum deposit for the home. The Help to Buy mortgage funds the remaining cost of the property.

Like before, the loan is interest-free for the first five years, after which interest fees start at 1.75% and rise each year in April by the Consumer Prices Index (CPI) plus 2%. Borrowers are also charged a monthly management fee of £1 for the term of the loan.

As well as limiting the new loan to First Time Buyers only, the Government has also introduced regional price caps to the new scheme, which means that homes eligible for the loan have to be below the set maximum price.

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 eager to use the new Help to Buy scheme can reserve their new home using the programme from 16th December 2020, though they cannot get the keys to move in until 1st April 2021.

The equity loan is secured against a property in the same way as a repayment mortgage, with buyers needing to repay the equity loan when they sell the home, pay off their repayment mortgage or reach the end of their equity loan term. However, buyers can repay all or part of the equity loan any time before then.

Will German, director of Help to Buy at Homes England, said of the new scheme: “Help to Buy has already helped more than 270,000 people into home ownership and 82% are First Time Buyers. The new Help to Buy builds on this success, with First Time Buyers in front of mind.”

He added: “We’re pleased we can help homebuyers with smaller deposits to own a home, at a time where there are fewer options open to them. Housing, like most sectors, has experienced a slowdown during the Covid-crisis. But Help to Buy continues to give homebuilders the confidence to keep on building at a more crucial time than ever.”

For more information about the new scheme and how to apply, you can download the homebuyers guide to Help to Buy: Equity Loan (2021-2023). Buyers must remember to check with their homebuilder that they are registered for the scheme before they apply.

What happens until the deadline?

There are no changes to the current Help to Buy equity loan scheme which runs until the end of March 2021. So, it’s still open to First Time Buyers and non-FTBs alike, as long as they are purchasing a newly-built home. And, for now, there are no regional caps.

But, of course, the end of March isn’t very far off, and buyers only have a few more months to get their purchase over the line before they are no longer eligible.

Because of the pandemic, however, the government is offering more flexibility to Help to Buy purchasers and housebuilders.

Under the original plans, sales transactions would need to have been agreed by December 2020 to take advantage of the scheme, but thanks to construction delays caused by Covid-19 the government announced in late July an extension to this original deadline.

The building deadline has been pushed back by two months to ease pressure on housebuilders and ensure that thousands of families can move into their new homes despite delays in building these new homes because of Covid.

This means that, rather than the new homes needing to be finished by the end of December, the deadline will now shift to 28th February 2021. This, the government says, will help ‘thousands of customers to get the keys to their new home’.

At the beginning of November, Housing Minister Christopher Pincher said there will be no extension to the 31st March deadline – the day the legal completion of the sale will need to be completed by – despite strong calls for an extension.  However, it was said previously that 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 30th June 2020 to examine their situation and look to provide an extension where necessary. If required, they will have until 31st May 2021 to legally complete.

Pincher said the government believe these measures provide sufficient time for developers to build out homes delayed by Covid-19 and protect customers whose purchases have been significantly delayed.

The need to act quickly is likely to be greater for non-FTBs, as this demographic will also be keen to avoid paying any stamp duty during the stamp duty holiday. But anyone looking to take advantage of Help to Buy in its current form, without the regional caps, will need to act soon.  The extensions provided by the government will ease the pressure somewhat, but these will expire before the middle of next year.
Many will be interested to see how the new scheme works, now it is only targeted at First Time Buyers and with regional price caps in place. Details on how this scheme plays out alongside the government’s other planned initiatives for First Time Buyers, namely 95% mortgages and the First Homes scheme, are not yet clear.

Help to Buy’s long-term legacy, will only become clearer over time, but it may remain a scheme that divides opinion.

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