HELP TO BUY SCHEME EXPLAINED: THE PRO’S AND CONS FOR FIRST TIME BUYERS

April 2021 changes have seen some would-be users excluded from property scheme

 

Hundreds of thousands of people have used the Help to Buy scheme to get onto the housing ladder since it launched in 2013.
However, new rules have limited the number of people who can use the Government scheme.
As before, buyers need a 5pc deposit to take part in the scheme, with the Government offering a loan worth 20pc of the purchase price, which is interest-free for five years. The remaining 75pc is obtained from a traditional mortgage lender.
However, users are now only able to purchase homes worth less than the average property price in their region. Those who are not first-time buyers have also been excluded.

 

What are the pros and cons of Help to Buy?

The new Help to Buy scheme officially launched in April 2021, replacing the previous version of the scheme which had run since 2013.  According to official statistics, more than 328,000 homes have been purchased using the scheme. Many of these buyers would not have been able to purchase without state support.
However, the scheme has been accused of pushing up house prices and boosting builders’ profits, rather than helping ordinary buyers. Since April 2021 regional price caps have applied and the scheme has been restricted to first-time buyers, with the entire scheme due to end in 2023.
Homes England, which runs the scheme, has allowed applications for the new Help to Buy equity loan scheme since December 2020 and users can now get the keys to their new homes and officially complete their purchases.
Buyers using the previous iteration of the scheme had until the end of May 2021 to complete their purchases, after the Government allowed a short extension to cover coronavirus-related delays to purchases. This has since expired, meaning all users must adhere to the new scheme rules.

 

What do the changes mean for me?

Those using the Help to Buy equity loan scheme to purchase a home must now be first-time buyers. They must also buy a house which is worth less than the average house price in their region. For instance, a buyer in the North East would need to purchase a home for less than £186,100. Those in the South East face a £437,600 price cap.
However, as price caps are regional, this means buyers may be excluded because they live in an expensive part of their region.
An investigation by Telegraph Money in 2018 found multiple two-bedroom Help to Buy flats for sale in Stratford-upon-Avon priced at more than the £255,600 cap applied across the West Midlands.
Would-be buyers in Northampton would be unable to purchase average priced semi-detached family homes as they are typically more expensive than the £261,900 limit in the East Midlands.
Ordinary buyers in other towns such as Cambridge, Harrogate, Warwick and York could also be excluded from the scheme.

 

Is Help to Buy only for new-builds?

Since launch the Help to Buy equity loan has been restricted to new-build properties. This has posed a problem for some buyers as newly-built properties are typically more expensive than homes that have been previously owned.

 

How do you pay off the Help to Buy equity loan?

The Help to Buy loan is interest free for the first five years, however after this point users will be required to pay interest on their equity loan.
In year six homeowners will pay an interest rate of 1.75pc, and in subsequent years this will rise in line with the consumer prices index rate of inflation, plus 2 percentage points.

 

Can I use Help to Buy to purchase a shared ownership home?

There are several Government-backed property schemes to help would-be buyers onto the ladder. Savers using a Help to Buy Isa are able to use their Government bonus to purchase homes under both the Help to Buy equity loan and shared ownership schemes.