First-time buyers will be able to apply to the new Help to Buy scheme from December 16, 2020, enabling more struggling would-be owners to step onto the property ladder.
Once the new scheme opens this month in England, eligible buyers will be able to reserve a new-build home and receive the keys to move in as early as April 1, 2021. The scheme will run for two years and will be open only to first-time buyers.
Housing Secretary Robert Jenrick has said the Government is providing more ways to help families onto the housing ladder to experience ‘that life-changing moment’ when they they are given the keys to their own home.
The new Help to Buy scheme, he said, along with First Homes, Shared Ownership and the £12bn investment in affordable housing, will help thousands more families cross the threshold into a home of their own.
How the Help to Buy scheme works
The aim of Help to Buy is to assist first-time buyers of new-build properties who find it difficult to save up for a deposit. A buyer need only pay a cash deposit of 5pc using the scheme, following which the lender offers a 75pc loan to value (LTV) mortgage. The Government then lends the buyer a maximum of 20pc (40pc in London) to cover the shortfall in the total cost.
Furthermore, the buyer does not pay interest on the loan for the first five years, which is the case in both the existing and the new schemes. From then on, fees start at 1.75pc. In the new scheme, a price cap of 1.5 times the average price paid by the first-time buyer will also apply, which will obviously vary from region to region.
The benefits of using the scheme
Help to Buy is available only on new-build properties which qualify. Although the number of new houses being built across the UK continues to increase, the government scheme has enabled many home buyers to buy these homes and enjoy the benefits of living in a brand new property.
House builders selling Help to Buy homes are required to comply with more stringent standards of insulation and construction, which will reinforce quality and consistency in this sector. The firms must also give buyers a new home warranty before completion, providing buyers with a ready-made solution to address faults which develop after purchase.
Vital support for first-time buyers
Help to Buy was launched in 2013 and has helped more than 270,000 people secure a home of their own. Although the scheme is currently available to home-movers as well as first-time buyers, 82pc of those who have used the scheme have been in the latter category.
The change in making the scheme applicable only to first-time buyers could well prove beneficial as it is in this sector of the market that consumers struggle to buy a home of their own. The number of first-time buyers is shrinking, due to a number of factors, including job insecurity, financial instability linked to Covid-19, plus the current mortgage market.
Lenders have withdrawn a number of high LTV mortgages recently, making it more difficult for first-time buyers to save up enough for a deposit. And the market is still not at pre-Covid levels, although more mortgage options are coming on stream. To make matters worse, mortgage fees and interest rates are on the rise.
Will German, director of Help to Buy at Homes England, is pleased that his organisation can help home buyers with smaller deposits purchase a home, especially at a time when there are fewer options open to them.
The new Help to Buy scheme is thought likely to lead to greater uptake by first-time buyers. And with the regional cap in place, many buyers are expected to explore cheaper areas of the UK, such as The North of England and the Midlands, where deposits go further.
