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The UK government introduced the Help to Buy: Equity Loan scheme (HTB) in 2013, to enable people with only a small deposit to purchase new-build properties.
Under the scheme, borrowers can purchase a property up to a maximum value of £600,000 with a deposit of just 5%. The government tops this up with a maximum loan of 20% of the property’s value if the property is outside London or 40% if the property is in the Greater London area. Therefore, the borrower will have a 25% deposit if buying outside London or a 45% deposit if buying in London, making the property purchase much more achievable. The loan is interest-free for the first five years and only needs to be repaid in full on sale of the property.
The HTB scheme is popular among home buyers. A decent percentage of new home purchases at the beginning of 2019 were achieved through the HTB scheme. The programme has assisted many people, including both first-time buyers and home movers.
This scheme will be replaced with a new programme at the end of March 2021.
What are the amendments to the HTB scheme in 2021?
From 2021, the HTB loan scheme will only be available to first-time buyers.
In addition, the new scheme sees the introduction of regional price caps for house purchases. The government will provide a Help to Buy loan for homes up to a specific value, and the price ceiling will depend on the region. This amended scheme will run for two years, from 1 April 2021 to 31 March 2023.
The table below, provided by HM Treasury, shows the new Help to Buy regional price caps.
|Region||Price cap for properties eligible for Help to Buy from April 2021 to March 2023 (£)|
|Yorkshire and the Humber||228,100|
|East of England||407,400|
Source: HM Treasury
Why is the current Help to Buy scheme ending?
The main reason is that the chief benefit is enjoyed by developers, not home-buyers. Industry experts have observed an artificial inflation in the price of new homes. A report by Morgan Stanley states that builders may charge an extra 5% for properties bought through the HTB scheme.
Another disadvantage of the scheme is that it is only applicable to new homes, and the value of these properties does not appreciate as quickly as the value of an old property. This is mainly because property developers charge a premium price for new-build properties. The growth in property value takes some time to reflect the house’s real value after offsetting this premium.
From 2021 to 2023, the government intends to support 110,000 first-time buyers in the UK.
What is replacing the Help to Buy ISA?
The HTB ISA is no longer available for newcomers.
One of the alternatives to this is the Lifetime ISA (HTB LISA), which offers a 25% boost to your savings by the government. The saver can deposit more towards the ISA each year, and this will allow the total bonus paid to be potentially much more significant. Rather than on home completion, the bonus will be paid each year (or monthly, if you contribute monthly).
Though the HTB LISA has its advantages, there is doubt as to whether it will soar in popularity as did HTB ISAs. The LISA is only offered by thirteen providers, and only three offer a cash-based LISA.
Do I need to hurry to take advantage of the current HTB scheme?
If you are a home-owner, don’t have a minimum deposit of 10% and do want to buy a new-build property, the answer is yes, as the current programme will only be available to you until 31 March 2021.
If you are a first-time buyer the regional price cap, which comes into play on 1 April 2021, may also affect the type of property you can buy. For example, the ideal property for you may be around £250,000 in the North-East. However, the new regional cap for that area is £186,100, which makes your dream home less achievable if you have a smaller deposit.
Remember that the new scheme will only be available to first-time buyers, and is currently scheduled to end in March 2023. So while a first-time buyer will have until March 2023 to access the scheme, home movers will only have until March 2021.
Only a certain quota of the homes in a new-build development are available under the HTB scheme. Given the 31 March deadline, you may be left with minimal options.
New houses take time to build, and from the time you make a booking it might take a year to build the home you want. This is because developers build and release homes in new developments in phases and work to a plan as to when each property will be available. If your desired home will be built later in the process, you can miss out.
The government might extend the HTB scheme after 2023 or could introduce a replacement scheme. However, this is not guaranteed.
Help to Buy can be complicated, and it is always best to talk to a mortgage broker who can offer specialist help and advice. This is especially true if you’re a first-time buyer or a home mover without experience of purchasing a house through the HTB scheme.
WIS has specialist mortgage advisers who can help you through the process. We are an end-to-end digital mortgage broker and can help facilitate a smooth purchase.
Information on HTB is based on our understanding of the current and planned schemes.
Information on LISA is based on our understanding of tax legislation and rules. The 25% bonus is subject to clawback if funds are not used for property purchase.
As a mortgage is secured against your home or property, it could be repossessed if you do not keep up the mortgage repayments.