The Help to Buy Equity Loan closed to new applications on the 31st October 2022 and existing applicants have until 31st March 2023 to complete their house purchase using the scheme. What, if anything, does this mean for first-time buyers?
What is it?
The Help to Buy Equity Loan is a government scheme put in place for first time buyers to put towards the cost of buying a property. The scheme lends between 5% and 20% (40% in London) of the market value of your property and is interest free for the first five years. To be eligible, borrower's must be first time buyers of a new build property and must not have previously owned any residential land or property.
The knock-on effects
Since its inception, nearly a quarter of a million buyers have taken advantage of the loan scheme, and its popularity has skyrocketed in recent years, with sources reporting that over 60% of new home purchases in 2018 benefitted from the scheme. There is little doubt that it has helped thousands of first-time buyers on to the property ladder.
There are some concerns in the industry that the end of the scheme will see a huge drop in demand for new homes in certain areas of the country, adding a further hurdle for first-time buyers to get on to the property ladder and compounding the already fragile housing crisis. Accordingly, there are calls from within the property industry for a follow-on scheme to maintain buyer demand levels for new build properties.
Is it all bad?
There are some critics that will be happy to see the end of the Help to Buy Equity Loan scheme. Many have denounced the scheme in the past, stating that it has artificially inflated the prices of new homes, with the developers seeing most of the benefit.
In 2017, financial services firm Morgan Stanley reported that developers can charge an extra 5% for properties sold to buyers using the Help to Buy Equity Loan scheme.
Adding to this, the scheme only applies to new build properties, which do not appreciate in value as quickly as older properties, usually because new builds can sell for a vast percentage more (up to 16%) but lose this premium after a few years. Therefore, first time buyers using the scheme may be paying up to 21% more for their property than those choosing to purchase an older property. In the long run, this can mean buyers are finding it is taking longer to be able to afford to upsize to their next home.
Is there a replacement?
Currently, there is no official replacement for the Help to Buy Equity Loan scheme, however, those looking to get their feet onto the property ladder might want to consider other options, such as the Lifetime ISA, shared ownership, guarantee mortgages and in some areas, local governments are running First Home schemes. Many developers also run their own schemes and incentives to help buyers purchase their home.
The government has also stepped in to try and give first time buyers a leg up onto the property ladder. In September 2022, they announced that the nil-rate tax threshold (the amount you would need to spend before owing any Stamp Duty) for first time buyers is increased from £300,000 to £425,000, and anything from £425,000 up to £625,000 attracts a reduced rate of Stamp Duty for first-time buyers.
Although the property market can be a minefield for first-time buyers our experienced conveyancers will be able to guide you through the buying process and help answer any of your concerns.
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