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£10bn Help to Buy boost: will first-time buyers benefit?

Equity loan scheme to fund 135,000 more house purchases

The government has pledged to invest a further £10bn into its Help to Buy scheme between now and 2021 – but to what degree is the popular initiative really helping first-time buyers?

The Help to Buy equity loan scheme has already aided 130,000 house purchases, and this new round of funding aims to more than double that number over the next four years.

But as prices climb, is Help to Buy really an affordable way for first-time buyers to get on the property ladder?

 


The Help to Buy equity loan to date

The Help to Buy equity loan scheme allows first-time buyers and home movers to purchase a new-build home with a deposit of 5%.

It works like this: you provide a 5% deposit and the government lends you up to 20% as an equity loan. This means you only need to get a mortgage for the remaining 75% of the property price. In London, the government’s equity loan is 40%, so that your mortgage only needs to cover 55% of the costs.

To qualify for the scheme, the home must cost less than £600,000.

Between the scheme’s launch in April 2013 and the end of June this year, 134,558 properties had been purchased with the aid of an equity loan. Of these, 81% were bought by first-time buyers.

Steady increase in Help to Buy prices

While Help to Buy has allowed many people to own their first home, there are questions about whether the scheme makes housing more affordable.

Indeed, research commissioned by the government in early 2016 found that only 40-50% of people using Help to Buy couldn’t have bought without it.

Up to the end of June 2017, the median purchase price of homes bought using Help to Buy was £216,995, or £204,950 for those bought by first-time buyers.

As with the wider property market, the prices of new-build homes bought using Help to Buy have increased significantly over time, as the chart below shows.

Help to Buy and the new-build premium

Looking at the median price for first-time buyers using the scheme (£204,950), it may seem like like buyers are spending less than average to become home owners. But that figure takes into account all sales between April 2013 and the end of June 2017.

The median price paid by first-time buyers in the second quarter of this year was actually £245,000 – considerably higher than the overall average UK house price of £223,800, according to Land Registry data.

While Help to Buy is achieving its aim of getting first-time buyers on to the property ladder, buyers may also spend be spending a premium when using the scheme – and that premium may be growing, as the chart below shows.

 

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Advice for first-time buyers

If you’re considering buying your first home, it’s best to do plenty of research into your options.

First of all, take a look at our full guide on how Help to Buy schemes work, before delving deeper into the ins and outs of Help to Buy equity loans.

If you’re just starting to save, you could consider opening a Help to Buy Isa or lifetime Isa – and take advantage of a bonus from the government when you come to buy your first home.

Finally, if you can’t afford to buy a house outright, you might be able to find a suitable shared ownership scheme in your area.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.

Categories: Money, Mortgages & property

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