Over the last five years, Help to Buy has enabled thousands of first-time buyers to get onto the property ladder as well as helping many home movers buy a bigger property.
There was good news in the 2018 Budget as the Chancellor announced that he was planning to extend Help to Buy until 2023. However, there will be changes to the scheme after 2021 which will affect you depending where in the country you’re buying and if you’re an existing homeowner.
Keep reading to find out what Help to Buy can do for you now, and what the changes will be in 2021.
Current Help to Buy rules
The Help to Buy Equity Loan scheme was introduced in 2013 and is designed to help you fund the deposit for your new home.
Under the scheme, the government will lend you up to 20% of the cost of your new-build home. This means that you only need to put down a 5% deposit, and alongside the government loan you’ll need to source a 75% mortgage. Many major lenders offer Help to Buy mortgages including Santander, Barclays and NatWest.
You don’t pay any interest or fees on the 20% equity loan for the first five years of owning your home.
The government retains a stake in your home (up to 20%) and you pay this back at the end of the mortgage, or when you sell the property. The government takes 20% of the sale price, whether this is higher or lower than the amount you borrowed.
Until 2021, you can use the scheme to buy a new build home worth up to £600,000 (£300,000 in Wales).
Here's an example of how the scheme works:
- You buy a new build home for £180,000 using the equity loan scheme.
- You put down a deposit of 5% (£9,000) and you borrow 20% from the government (£36,000).
- You get a mortgage at 75% loan-to-value (£135,000).
If you're buying in London, then you can take out an equity loan of up to 40% of the property value (interest-free for the first five years). You must put down a deposit of at least 5%, meaning you’ll need to borrow up to 55% of the value of the property.
Everything you need to know about getting a mortgage with Help to Buy
How is Help to Buy changing?
In his Budget speech, the Chancellor announced that he was extending the Help to Buy scheme until 2023. However, Philip Hammond has also announced that there will be changes to the scheme after 2021.
The Red Book – the small print underlining the Budget speech – says: “The Help to Buy Equity Loan was introduced in 2013 to support the housing market in challenging conditions.
“By March 2021, the Government expects to have invested around £22bn in the scheme, supporting up to 360,000 households into homeownership.
“Conditions in the market have improved since 2013: there is a growing number of high loan-to-value products available to first-time buyers, and housing supply continues to increase.
“To ensure future support is targeted at those who need most help into homeownership, the Budget announces that from April 2021, a new Help to Buy equity loan scheme will run for two years before closing in March 2023.”
There will be three main changes to Help to Buy from 2021 to 2023.
- It’s restricted to first-time buyers
Currently, you can take advantage of the Help to Buy Equity Loan scheme if you’re a first-time buyer or you’re a homeowner looking to move.
From 2021, Help to Buy will be restricted to first-time buyers only. So, if you own your own home and you’re looking to take advantage of the scheme you must do so before April 2021.
Mike Scott, chief property analyst at online estate agent Yopa, said: “Some 81% of buyers under the current Help to Buy scheme are first-time buyers, according to the new review published today by the Treasury, so restricting the scheme to first-time buyers won’t have a large impact.”
- There will be regional caps
Until 2021, you can use the Help to Buy scheme if you’re buying a home up to the value of £600,000 (£300,000 in Wales).
Between 2021 and 2023 the scheme will change, and new regional price caps will be introduced. These caps have been set at 1.5 times the regional average first-time buyer price (according to forecasts) and set a maximum value for any property you can buy using the initiative.
The new regional caps are:
- North East - £186,100
- North West - £224,400
- Yorkshire & 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
You’ll be able to secure an equity loan if the property purchase price of the property is lower than the cap.
The cap means that people in the North East would get a maximum equity loan of £37,202, while buyers in London could benefit from an equity loan of £240,000, as they can borrow 40% of the purchase price up to £600,000.
- Ends in 2023
So far, the government has extended the Help to Buy on several occasions. Changes and additions have also been made to the scheme.
This time, the Chancellor has confirmed that the government does not intend to introduce a further Help to Buy equity loan scheme after March 2023.
As more and more 95% loan-to-value mortgage products become available in the market, the government believe that buyers do have access to the products they need without assistance from Help to Buy.
If you want to take advantage of the scheme, you’ll need to do so before March 2023.
Need more Help to Buy information? Read our complete Help to Buy guide