The Government has confirmed it will extend the Help to Buy equity loan scheme past the original 2021 deadline to 2023. However, the extended scheme will be restricted to first-time buyers only who are purchasing newly built homes during that time.
In addition, during the extended period from 2021 to 2023 the Government will introduce new regional price caps which will dramatically reduce the maximum value of homes that can be bought with the assistance of the scheme.
Currently anyone moving to a newly built home who is taking advantage of the Help to Buy equity loan can buy a property worth up to £600,000.
During the extended period from 2021 to 2023 a cap will be set at 1.5 times the current forecast regional average first time buyer price, up to a maximum of £600,000 in London.
This will see buyers in the North East having their purchasing power under the scheme dramatically reduce to properties worth a maximum of £186,100.
Only first time buyers in London will still be able to purchase new properties up to £600,000 using the equity loan after 2021 with all other regions seeing maximum eligible property prices substantially cut.
As only first time buyers will be eligible to apply under the scheme during the extended period those looking to benefit from the scheme but who already own their own home must take advantage of it before April 2021.
After 2021 first-time buyers will see the maximum value they can borrow from the Government drop dramatically everywhere except London.
In its Red Book the Government have set out the regional price caps as follows:
New Help to Buy regional property price caps
|Region||Price cap for properties eligible for Help to Buy Equity Loan scheme from April 2021 to March 2023|
|Yorkshire and The Humber||£228,100|
|East of England||£407,400|
Source: HM Treasury analysis
This scaled back extension of the Help to Buy scheme was widely expected by mortgage lenders and housebuilders ahead of the October Budget statement.
However, the Government also confirmed in the Budget that it does not intend to introduce a further Help to Buy equity loan scheme after March 2023.
The Help to Buy equity loan scheme was first introduced in 2013 to support the housing market in, what was then, very challenging conditions. The Government has said that, by March 2021, it expects to have invested around £22billion in the scheme, having supported around 360,000 households into home ownership.
However, conditions in the market have improved since then and there is now a growing number of high loan to value products available to first time buyers, coupled with an increasing supply of housing.
Therefore, to ensure that the Government supports those who need the most help into home ownership the new Help to Buy equity loan scheme will commence in April 2021 and run for two years, ending in March 2023.
Under the scheme borrowers are offered an equity loan which is equal to up to 20 per cent of the value of the property (40 per cent for properties in London), the loan being interest free for five years.
This means that homeowners have to find just 5 per cent in savings for a deposit, while mortgage lenders fund the remaining 75 per cent (or 55 per cent in London) with a mortgage.
It was designed, following the financial crisis, to offer reassurance to mortgage lenders which were still running scared from first time buyers with small deposits.
It certainly has achieved this as following the scheme’s introduction, the number of 95 per cent loan to value mortgages available to first time buyers without the support of Help to Buy has substantially increased.
Unfortunately however, the scheme has also faced criticism; with many experts stating that the £600,000 maximum property value has done more to help inflate house prices and raise profits for housebuilders.
The upcoming price caps may therefore help to deal with the criticism that the scheme helps to artificially increase house prices and line the pockets of builders. In addition, the changes in making the scheme available for first time buyers only means that it is targeted at those who need it most.