It has been reported that the government could be planning to close or change the Help to Buy scheme in 2021 – but what’s really going on?
The Help to Buy equity loan scheme, which enables people buying new-build properties to borrow 20% of the house price from the government (40% in London), is currently set to run until 2021.
Nothing has been officially revealed about what the government plans to do at that point, but rumours that Help to Buy will be scrapped, amended or even simply extended circulated over the weekend.
Amid this confusion, we explain what we know so far about the future of Help to Buy, and offer advice on alternative ways you can get a home with a 5% deposit.
Speculation over future of Help to Buy
Between its launch in 2013 and the end of March this year, the Help to Buy equity loan scheme helped 169,102 people to buy a home, according to official figures.
While many sing its praises, it hasn’t been welcomed by all. Critics state that too many people who use the scheme could buy a home without it, and that it artificially increases the prices of new homes.
Now, with Help to Buy slated to close in 2021 and no decisive information forthcoming on its future, there’s been a great deal of speculation about what might happen, including:
- The scheme could be scrapped entirely after March 2021
- It could be extended for two years with different rules, and possibly even a different name
- It could be tapered to only allow applicants with lower incomes
No decision on future of Help to Buy
In a statement provided to Which?, the government only confirmed the scheme will last until at least March 2021, but did imply it will make a decision regarding its future soon.
A spokesperson said: ‘The government has committed to the scheme to March 2021 and recognises the need to create certainty for prospective homeowners and developers beyond this date.’
Help to Buy criticised for boosting house prices
A recent report by independent think tank The Resolution Foundation claimed that new-build prices have increased by more than £50,000 since Help to Buy was introduced.
The report claimed: ‘Since early 2016, the growth in new-build prices has outpaced price growth for existing resold property, strongly suggesting that equity loans have enabled developers to set prices at higher levels than otherwise.’
The government has responded to these suggestions by claiming Help to Buy doesn’t have a large enough market share to affect prices.
It said: ‘The scheme is limited to new-build properties to drive up the number of homes being built, as well as helping people to afford a deposit to buy a home.
‘Help to Buy equity loan transactions are now around a third of new-build sales, yet they remain less than 4% of overall housing sales, so the scheme is unlikely to have a significant effect on house prices.’
Who is Help to Buy really helping?
While the scheme has primarily helped first-time buyers – with eight in 10 homes going to those stepping on to the housing ladder – it has also benefited upsizers and buyers with large incomes.
For example, over 6,700 households with incomes of £100,000 or more have used Help to Buy since it was introduced.
Alongside this, over 32,000 households have used the scheme to trade up to a bigger home.
Buying a home with a 5% deposit
Help to Buy is very popular, but it’s not the only way of buying a home if you have a small deposit. You could consider the following alternatives:
Get a 95% mortgage
This might just be the year of the 95% mortgage, with more lenders coming on to the market and longer loan terms of up to 35 years becoming more common.
Taking out a 95% mortgage rather than using Help to Buy also means you’ll have access to older properties rather than just brand-new ones, so you might find it easier to snag a bargain.
Seek help from a family member
Many first-time buyers rely on the Bank of Mum and Dad to help them buy their first home, often in the form of cash gifted or loaned as a house deposit.
That’s not the only way parents (or other family members) can help, though. For example, parents who don’t have the up-front cash to help with a deposit can consider guarantor mortgages or joint mortgages.
We recommend taking independent financial and legal advice before financially linking yourself with another individual.
Consider shared ownership
Shared ownership schemes allow you to buy a share of a property (typically 25-75%) from a housing association and pay rent on the rest.
While you can upgrade to full ownership through a process called staircasing, shared ownership costs can be very expensive from month-to-month once you’ve factored in service charges and rent.