Buyers keen to use the Help to Buy Equity Loan scheme to move up the property ladder are being urged to act soon before changes are enforced.
In a year’s time some buyers will no longer be eligible to use the scheme and there will be limits on the value of properties which people can purchase using Help to Buy.
Although there is still 12 months before these changes are implemented, experts are warning buyers that because of the long home buying and building process, they will need to get their contacts exchanged before the summer to benefit.
Second-steppers
Help to Buy Equity Loan allows people to purchase a new build home by taking out a loan for 20% of the property’s value from the government (40% in London).
Because the buyer requires a minimum of 5% of their own savings it means they will be able to put down at least a 25% deposit and therefore have the pick of more homes – including larger family-sized properties.
In its current form the scheme is open to first-time buyers and second-steppers, who are moving up to the next rung of the property ladder.
However, when the changes come into force in April 2021, the scheme will only be open to first-time buyers.
According to the latest Help to Buy figures, 81% of people using the scheme were first-time buyers. This still leaves just under 20% who will no longer be eligible.
Regional price caps
The other change is in relation to the price of the properties. Regional price caps will come into force which will restrict first-time buyers in the value of homes they can buy.
Under the current scheme you can buy any new build property up to the value of £600,000.
When the changes come into force, each area will have different caps. While in London, the cap remains at £600,000 in the North East, for example, buyers will only be able to use Help to Buy to purchase homes prices at £186,100 or less.
The caps were set at 1.5 times the average regional first-time buyer price as forecast in 2018.
New Help to Buy regional property price caps
| Region | Price cap for properties eligible for Help to Buy Equity Loan scheme from April 2021 to March 2023 |
| North East | £186,100 |
| North West | £224,400 |
| Yorkshire and The Humber | £228,100 |
| East Midlands | £261,900 |
| West Midlands | £255,600 |
| East of England | £407,400 |
| London | £600,000 |
| South East | £437,600 |
| South West | £349,000 |
| Source: HM Treasury analysis |
How will this impact you?
According to James Chidgey, new homes relationship manager at Mortgage Advice Bureau, anyone who is not a first-time buyer and wants to take advantage of the current scheme should act quickly.
He said: “Ultimately you’ll need to exchange contracts by the late summer 2020. The construction of a new build home can take anywhere between four to eight months depending on the weather, construction supply delays and any requested customer design changes that are implemented along the way.”
Other routes for first-time buyers
Help to Buy is not the only route to homeownership for first-time buyers. Chidgey suggested shared ownership, where people can buy part of the property and rent the rest and therefore require a smaller mortgage and deposit.
He also encouraged potential buyers to consider guarantor mortgages, where a parent or close family member uses their own property or savings as security against your loan.
Again, lenders may accept a smaller deposit than usual and sometimes they may not need one at all.
Chidgey added: “There are other routes such as 95% mortgages which require only a 5% deposit – rates on these deals have reduced considerably in recent years.”
