What does the Help to Buy scheme ending mean for first-time buyers?
Help to Buy was introduced in 2013 and has helped approximately 400,000 mostly first-time buyers get on to the property ladder. But the scheme is due to end soon for new applicants (in 2023), so if you’re planning to buy your first home then it’s time to get your skates on. Here’s what to consider.
What can I buy via Help to Buy now?
Until next year, the Help to Buy scheme carries on as it has before, offering several ways to get on the property ladder. These are either via two tax-free savings accounts or through an equity scheme.
Both the buy and equity loan schemes are popular with those trying to get on the property ladder, one of the ways in which the government helps you buy a home.
Does Help to Buy end next year?
So, when does help to buy end?
After 2021 the popular equity loan scheme is continuing. Meanwhile the Help to Buy: ISAs savings scheme will close at the end of November 2019 to new applicants. The shared ownership scheme is to carry on.
Although Help to Buy: Equity is to be extended to 2023, it is being scaled back and a price cap applied based on local house prices. This means the scheme can only be used to help buy homes with ‘maximum’ values, depending on where you live.
For example, the caps in England will be £600,000 in London, in the South East, £427,600 and in the North East, £186,100. The scheme will also only be available to first time buyers, which has not been the case in the past. Decisions about whether to extend the scheme past 2021 in other regions of the UK are still pending.
Do I need to get a move on?
Yes, if you want to take advantage this government scheme, you may not have long. The current scheme only runs until early 2021 and the new version will only last for two years until March 2023. This may sound like a long time, but remember you’ll need time to save up a deposit and apply for a mortgage, and find your first home to buy.
Saying that, there’s a good chance that the government may extend the equity scheme again in 2023, or introduce a replacement. But don’t bet on it.
On the one hand politicians are worried that the scheme is distorting the first-time buyer property market. But they are equally worried that ending it will prevent thousands of first-time buyers getting on to the property ladder in the future.
One option might be to offer first time buyers low-interest or interest free cash loans of up to £25,000 to help them get on the property ladder. This was recently announced in Scotland.
How do I qualify for the equity scheme?
Help to Buy buyers outside London must be able to fund both up to 80% (60% in the capital) of their home through a mortgage and the deposit, which must be at least 5% of the property’s purchase price. The maximum purchase price is £600,000 and it must be your only residence.
What other options do I have as a first time buyer?
Is there any other help for first time buyers?
Help to Buy has been incredibly popular, and for good reason. Once it ends, it could be much harder for first time buyers to purchase a property. Here are some alternatives:
This is a cross between renting and buying and enables you to buy up to 75% of a property’s value and then pay rent on the rest.
Get your parents or grandparents to chip in
This is a popular way to get on the property ladder by asking family members for help paying the deposit for a property. This is also known as the ‘bank of mum and dad’.
It’s essential to get the agreement set out in writing and ensure it’s clear to everyone whether it’s a long or short-term loan, or a gift. Also, agree when repayments will start, if applicable.
Buy with a mate
Buying with a mate can be a brilliant idea. You can combine your savings for the deposit and your joint income will boost how much money you can borrow with a mortgage. If you’re going to do it, find a good independent financial advisor to help you find a specialist mortgage.
The paperwork will also need to be more detailed. It must define the rules of the relationship including what happens if one person wants to sell up or buy the other out, how the running costs are shared, whether either of you can take in lodgers, and what happens if one of you dies.
Remember, there’s a lot to consider when it comes to first time buyer
Save up a larger deposit
The bigger the deposit you save up, the more likely it is you will be accepted for a mortgage or offered one with a lower interest rate. The ideal scenario is to save up 25% of a property’s sale price, but 15% is good too. For a £200,000 flat a ‘larger deposit’ would be between £50,000 and £30,000, respectively. This can make it easier for you to get a mortgage guarantee, for example.
Buy in a less desirable area
House prices can vary by up to 25% if you look at two area within just a few miles of each other in many cities and towns. You may not impress your friends when you buy in a less desirable but cheaper area, but in the long run you’ll be the winner. Do your research carefully and pick areas to buy in with solid, good-quality housing stock, which are currently ‘unfashionable’.
Let us lend you a hand
Want to get to know an area?
To arm yourself with the best information to help with every aspect of your first home purchase get Phil Spencer’s property report.
From stamp duty to mortgage repayments to legal fees, there’s a lot for hopeful homeowners to consider. This is why arming yourself with the knowledge you need is essential! Following a first time buyer checklist can help ensure you don’t miss anything important.