The government has announced plans to invest a further £10 billion into the Help to Buy scheme, in a move which will help 135,000 people find their feet on the property ladder.
Prime Minister, Theresa May, stated that the Budget, which will be held on 22 November, will outline plans to make the housing market more accessible, for both first time buyers and selected home movers.
What is Help to Buy?
Help to Buy is available in England and is a government scheme designed to help first time buyers and selected home movers to access the property ladder, by lending an amount to cover some of the costs associated with buying a home.
Help to Buy is only available for new build properties which are registered under the scheme. Outside of London, the costs for buyers breaks down into:
- Provided by the buyer: A deposit of 5% of the property’s cost and a mortgage for 75% of the property’s cost
- Provided through the scheme: A 20% Help to Buy loan
Within the Greater London area, the Help to Buy scheme offers up to 40% of the property’s cost, leaving the buyer to contribute the 5% deposit and a 55% mortgage.
The equity loan repayments are interest-free for the first five years. If the property is sold before the loan has been repaid, the loan will rise in line with 20% of the sale price.
For example:
A property purchased for £200,000 under the Help to Buy scheme will be paid for using:
- Buyer’s 5% deposit: £10,000
- Buyer’s 75% mortgage £150,000
- Buy to Let 20% loan: £40,000
If the property then sold for £210,000, the buyer would receive 80% of that sale price (£168,000) and would repay their Help to Buy loan with the remaining 20% of the income (£42,000).
The effects of Help to Buy
While helping to Buy was designed with good intentions, not all experts see it that way. The scheme does help first time buyers and those looking to move elsewhere to get onto the property ladder, but it has also been accused of pushing up housing prices in other markets.
As a Help to Buy is only available for those looking to purchase a newly-built home, the sales of so many new properties have meant that the prices of older buildings and homes have risen by as much as 10% in some areas of England.
Why is it needed?
Buying a home is no easy feat for many people. The Help to Buy scheme makes it easier for the young and low-earners to own their own home, as it requires a smaller deposit.
Twenty years ago, almost half (46%) of 25-year-olds owned property. This figure has fallen to just 20% in the years since and has led to an increase in private renters (half of 24–34-year-olds live in private rented accommodation).
However, housing experts are concerned that enabling access to buying property may overheat an already hot market.
Sam Bowman, Executive Director of the Adam Smith Institute, said: “The property market is totally dysfunctional because supply is so tightly constrained by planning rules, and adding more demand without improving the supply of houses is just going to raise house prices and make homes more unaffordable for people who don’t qualify for the Help to Buy subsidy.”
“Reviving Help to Buy is an astonishingly ill-judged move that may prove economically and politically disastrous for the government.”
However, so far, the Help to Buy scheme has enabled over 200,000 people to purchase their own home, and one in 12 first time buyers are accessing the housing market via the Help to Buy scheme. This shows that the system is working toward its intended objectives, despite the criticism from property experts.
Benefits for first time buyers
The Help to Buy scheme offers first time buyers and selected home movers the chance to access the necessary funding to secure their first property, with a much smaller deposit needed and shorter savings time before making the purchase a reality.
The Budget, which will be held on 22 November will contain more details and we will keep you updated on how the Help to Buy scheme can benefit you as you buy your own home. In the meantime, feel free to check out our First Time Buyer guide, or contact us on 0207 808 4120.