The final date for homebuilders to take reservations under the current Help to Buy Equity Loan scheme is Tuesday 15 December 2020. This is to allow enough time for sales to legally complete by 31 March 2021 when the scheme ends.
As of 1st April 2021, the existing scheme will be replaced by a new one with very different criteria. Several regional price caps will be introduced, which may dramatically impact the value of the property you’re looking to buy. The new scheme is also only available to first time buyers so it could mean you aren’t eligible at all.
What are Help to Buy Equity Loans?
Help to Buy Equity Loans were introduced by the government in 2013 with the aim of helping people get on the property ladder.
It’s important to realise there are different Equity Loan schemes for England, Greater London, Wales and Scotland, and they all differ slightly.
Here is a summary of the Help to Buy Equity Loan scheme:
● The government will lend you up to 20% of the cost of your new build home. This increases to up to 40% if the property is in London. This is called an equity loan.
● You’ll need to save a minimum of 5% of the purchase price as a deposit, and you can use contributions from your Help to Buy ISA or Lifetime ISA to pay this. The remaining 75% comes from a specialist Help to Buy mortgage product.
● As you’ll have a larger deposit, you won’t need to raise as much of a mortgage. This means your initial mortgage payments will be lower. It should also help with affordability calculations when you apply for your mortgage.
● The equity loan is interest-free for the first five years and you don’t need to make any repayments on it during that time.
● The current scheme is open to first time buyers and existing home owners. It’s also only available on new build homes, up to a maximum purchase price of £600,000. For more information on the scheme, please click here.
What’s different about the new Help to Buy Equity Loan scheme?
The new scheme will run from April 2021 to March 2023.
The government will still lend you up to 20% of the cost of a newly built home. Again, this increases to up to 40% in London. However, there are some major changes from the existing scheme:
• Only first time buyers will be able to use the new Help to Buy Equity Loan scheme
• New regional price caps will be introduced. As a result, the maximum value of homes that can be bought with the scheme's help will be dramatically cut in most areas. The caps have been set at 1.5 times the average first time buyer price in each region (as of autumn 2018)
This infographic explains a little more about the changes, in England:
There are different Equity Loan schemes for England, Greater London, Wales and Scotland which vary slightly. To find out more, visit helptobuy.gov.uk
What are the regional price caps?
| REGION | PRICE CAP |
|
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 |
What will be the likely impact on the wider market?
So what will the impact on the market be as the scheme eligibility is restricted to first time buyers only? Mobeen Akram, National New Homes Account Director at Mortgage Advice Bureau, explains:
"About 13% of first time buyers purchased a home using the Help to Buy Equity loan scheme in 2018. And of those using the current scheme some 80% are first time buyers.
“Although the regional price caps mean less choice of property, the scheme is still a great way for first time buyers to get on the property ladder as they require a much lower deposit, sometimes 5%.
“However, due to the new restrictions, there is likely to be a reduction of up to a third in the annual 50,000+ buyers using the new scheme next year. And pressure is building on lenders and the market to come up with other ways to fund high loan to value mortgages on new build properties, after Help to Buy finally closes in 2023.
“Currently, outside the Help to Buy scheme, most lenders will only lend up to 85% loan to value on new build houses, and 80% loan to value on new build flats.”
What should I do if I want to use the current scheme?
If you’re not a first time buyer and you want to take advantage of the current scheme, you’ll need to act quickly. House builders have been given a bit of breathing space by the government to physically complete properties under the current scheme by no later than 28th February 2021, but the buyer still needs to legally complete the transaction by 31st March 2021.
Likewise, if you’re hoping to buy a house that is priced above the regional price caps, then it’s important to act now, otherwise you could miss out.
What are my other options?
While Help to Buy has been popular with first time buyers, it’s not the only route available if you have a small deposit.
● 95% mortgages: the average rates on mortgages that require just a 5% deposit have reduced significantly in recent years. This has made them considerably cheaper. And unlike with the Help to Buy Equity Loan scheme, you won’t be restricted to new build homes. However, as Mobeen explains above, you may struggle to get a high loan to value mortgage on a new build property.
● Shared Ownership: also known as ‘part buy, part rent’, this scheme allows you to buy a share of a property and pay rent on the rest. And as you'll only need a mortgage for the share you’re buying, you'll need a much smaller deposit than if you were buying the home outright. Find out more about Shared Ownership here.
● Guarantor mortgages: this is when a parent or close family member uses their own property or savings as security against your mortgage. This means lenders may accept a smaller deposit than usual and sometimes they won’t require any deposit at all. Find out more about guarantor mortgages here.
This article has been supplied by Mortgage Advice Bureau (MAB), the UK’s most recognised mortgage intermediary brand. MAB is a leading new build mortgage broker and has over 1,400 mortgage advisers based locally across the country ready to help people find the most suitable mortgage for their circumstances, as well as protect their home through income protection, life cover as well as general home and contents insurance.
The original content was published, here.
