Help to Buy has been a staple of the new build homebuying process for the best part of seven years now. The scheme has played an essential role in more than a quarter of a million house purchases since 2013 and a key route onto the housing ladder for Britain’s first-time buyers.
But how does the scheme support buyers who are looking to purchase a new home? And what are the alternatives?
How does it work?
The Help to Buy Equity Loan scheme is available only on new build properties and is supported by providing a government-backed loan of up to 20% (or 40% in London) to borrowers on top of their mortgage. This mortgage can be as much as 75% of the value of the property (or 55% in the capital) and means that borrowers can buy a brand-new home for as little as a 5% deposit.
Borrowers using Help to Buy will not have to make any interest payments on the equity loan for the first five years either, which will help to keep monthly repayments low.
Dates in mind
Help to Buy was only ever established as a temporary solution for the housing market and next year will see the biggest change to the equity loan scheme since it launched in 2013. From 1st April 2021, the programme will be restricted to first-time buyers, before closing entirely in 2023. For first-time buyers, that might sound like there is still plenty of time to make use of the scheme, but it’s important for them to understand the changes that will be taking place and what effect they will have.
Over the next nine months, there are two key dates that buyers will need to be aware of. The first is a practical completion date of 31st December 2020; this is the date by which the developer must have completed the construction of the property. COVID-19 is likely to have delayed some developers, so buyers who may have had their eyes on a particular building or home before the crisis should check in with the developer to see if the completion dates for the build have shifted.
Secondly, homebuyers have a legal completion date of 31st March 2021 to finalise their purchase. This means that buyers need to make sure they have the keys to their new home by the end of March. If they are not able to complete by this date, even if they are purchasing their first home, they will need to restart their mortgage application and apply via the new Help to Buy scheme.
Currently, the maximum purchase price for Help to Buy in England is £600,000. In Wales buyers using the Help to Buy scheme are subject to a smaller £300,000 limit up until the 23rd December 2021 when the scheme is expected to end. The government has announced it is introducing regional price caps on properties purchased through the second phase of the scheme. The regional price caps from 1st April 2021 are as follows:
| New Help to Buy regional price caps | |
| Region | Price caps for properties eligible for Help to Buy from April 2021 to March 2023 |
| 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 | £349,00 |
| Source: HM Treasury |
Alternative routes
The Help to Buy scheme is likely to become even more popular in the era of COVID-19. In fact, our latest research has found that 13% of first-time buyers are now planning to use the scheme, who were not before the crisis.
However, Help to Buy is not the only route to homeownership for those with smaller deposits. While the COVID-19 pandemic has significantly limited the number of low deposit mortgages available to borrowers, lenders like Nationwide, as well as other providers accessible via independent mortgage advisers, have relaunched 90% LTV mortgages that enable homebuyers to step onto the ladder with just a 10% deposit.
Shared Ownership, which has existed since the 1970s, also provides a different path for homebuyers. Under this scheme, consumers purchase a share of the property with a mortgage.
The remaining equity is owned by a registered third party, such as a housing association, to which the ‘homeowner’ pays rent each month. Buyers have the option to ‘staircase’ in the future, meaning they can buy a bigger share of the property.
Just like Help to Buy, this scheme is set to see a boost in interest following the Coronavirus crisis. Our research shows that nearly a quarter (23%) of first-time buyers are planning to buy a Shared Ownership property.
The options don’t stop there. Family support mortgages, where a family member may provide some form of assistance towards the deposit, are just one way the Bank of Mum and Dad is helping first-time buyers into homeownership. At Legal & General Mortgage Club, we are also seeing a growing number of advisers searching for Joint Borrower/Sole Proprietor mortgages, where another individual supports the affordability requirements of a mortgage through their salary, but they do not become legal owners of the property.
Help to Buy is certainly a great way of stepping onto the property ladder, but alternative routes like family support mortgages may suit others better. With all these options, and the added uncertainty caused by the pandemic, it’s no surprise that many buyers will have lots of questions regarding their next steps. Whether choosing Help to Buy or seeking out a low deposit option, speaking with an independent mortgage adviser is more important now than ever.
Blog provided by Craig Hall at Legal & General.