The government has announced sweeping changes to the Help to Buy: Equity Loan scheme from April 2021 prior to the scheme’s scheduled withdrawal in 2023.
From April 2021 Help to Buy is going to be restricted to first-time buyers who will also be subject to a regional cap on the amount they are able to pay for their first home.
The cap varies widely according to where in the country you are, with buyers in the North East subject to a maximum price of £186,100 compared to borrowers in London who are subject to a price cap of £600,000 (see table).
Origins of Help to Buy
Help to Buy was first introduced in 2013 to support the housing market at a time when lending volumes were low, in particular with regard to the provision of high loan-to-value loans.
It offers buyers of new build property an equity loan of up to 20% of the property purchase price, which is interest-free for the first five years. In London the maximum equity loan increases to 40%.
By March 2021 the government expects to have invested around £22 billion helping some 360,000 households into homeownership.
But it’s also attracted criticism, with some commentators claiming it has artificially inflated the price of a new home or helped people who are already homeowners trade up when they don’t necessarily need more space.
Changes to the scheme
The changes address some of these concerns by limiting the new scheme to first-time buyers, who currently account for 81% of Help to Buy loans.
But there may be unintended consequences for new build developments. For the last seven years 19% of Help to Buy sales have been made to existing homeowners who are trading up and generally buying the larger homes on a development.
These buyers could be impacted without the incentive of the equity loan and the subsequent lower repayments offered in the initial years.
It will be interesting to see how the changes shape future developments. Will they lead to developments with a smaller average number of bedrooms and less diversity of homeowners, or developments with houses that are built to the price cap rather than the needs of the local population?
Building homes
With a 300,000 a year government target for new homes, one thing is certain – lenders need to continue to offer wider criteria to help customers whether it is to help them buy their first home, or to help them trade up to the higher end properties no longer covered by the Help to Buy cap or for home movers.
Customer needs have changed in the years since Help to Buy was launched. The post-crash years have created an employment market where newer self-employed applicants or those with more complex incomes have become the new normal. To meet the demand for the sale of new homes these customers, as well those with a less than perfect credit score need to be confident that they have the same chance to purchase as anybody else.
New build mortgages
New homes will still be built and attract both first-time buyers and home movers. And those brokers who specialise in new build mortgages will be looking to lenders to help their customers secure their new homes, whether that is with Help to Buy or not.
Speed and certainty have always been the key drivers of success in the new build market. Whether it’s delivering an instant decision in principle or instructing the valuation day on one to reduce time to offer, lenders have to recognise new build is different to the rest of the market.
At The Mortgage Lender we recognise that difference, we know specialist new build brokers need a bespoke proposition that is suitable for their market and not the whole of the market.
When you combine our service proposition with our criteria, which is built around complex incomes, self-employed people and impaired credit we feel we’re in a good position to support brokers and the future of new build.
