The Help to Buy scheme has been extended to help those affected by building delays caused by lockdown. The two-month shutdown of the housing market has led to widespread construction delays.
The Help to Buy Equity Loan scheme, which lets buyers purchase a new build home with a deposit of as little as 5%, comes to an end on 31 March 2021 but buyers needed to complete by 31 December 2020 to take advantage of it. The Government has now confirmed an extension to help those affected. The two-month extension, will be a huge relief for buyers that were left in limbo, worrying that their properties would not be completed by the deadline, potentially losing their deposit. More than 18,000 property transactions are expected to be affected by missing this end of year deadline according to industry body the Home Builders Federation.
Official figures show 273,000 properties worth a combined £73 billion have been bought using Help to Buy loans since they were introduced in April 2013. The average purchase price was £268,553 with buyers using an equity loan of £58,820.
However, completions using the scheme dropped 17% in March compared to the same time last year, as a result of coronavirus and lockdown. The attraction of the scheme is that the Government gives you a loan of 20% of the value of the property, or 40% in London, and you have a 5% deposit, meaning you only need a mortgage of 75% outside London and 55% within London. This helps buyers who are struggling to save up for a deposit or who find that their salary is too low to buy a house with a standard mortgage. The equity loan is interest-free for the first five years, and can be paid back at any time, up to the maximum loan term of 25 years. After five years, you will be charged 1.75% interest and then go up each year. Help to Buy is available for new homes only, worth up to £600,000 in England and £300,000 in Wales. You must be able to afford the monthly fee and interest payments and you must not own any other property or enter a part exchange deal on your old home. You cannot sublet or rent out the property after you buy it.
From April 2021 the scheme is changing– and there are plans to end it completely by 2023. Help to Buy will no longer be available to second steppers – only first-time buyers will be eligible. Regional price caps will be introduced, aiming to focus on helping those who need the scheme the most by setting a maximum purchase price on regional home prices. Hiten Ganatra, managing director of Visionary Finance, warns: “The extension of the Help to Buy scheme will help many buyers ensure they don’t miss out. “But the next, diluted version of the scheme will be harder to access for many who need support in keeping the housing market moving. “The regional price caps mean that tens of thousands of people could be left out. “We need a scheme that’s inclusive and supportive for all.”
First-time buyers could find it harder to find a mortgage without Help to Buy because lots of lenders have withdrawn loans for people with small deposits. According to comparison site Moneyfacts, there are now 68 mortgages with a 10% deposit available, while at the beginning of March there were 779. For those with a 5% deposit, there are just 20 on the market. Mr Ganatra adds: “There’s no doubt that first time buyers have a more difficult landscape at the moment but a broker can help you find the best route for owning your own home.”
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Hiten Ganatra is Managing Director of mortgage brokers in Milton Keynes, Visionary Finance.