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27 Sep 2020

First-time buyers: what's happening to the Help to Buy scheme?

Welsh government extends equity loan scheme until 2022 but reduces price cap

The Help to Buy Wales scheme has been extended by 12 months and will now run until at least March 2022.

The Welsh scheme has so far provided equity loans to more than 10,000 buyers, enabling them to buy new-build homes with a 5% deposit.

Here, Which? explains how the extension will work and investigate what's happening to Help to Buy elsewhere in the UK.

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Help to Buy Wales extended until 2022

Help to Buy Wales allows first-time buyers and homemovers to benefit from a 20% equity loan from the government when buying a new-build home.

Buyers can then take out a 75% mortgage and put down a 5% deposit to pay for the remaining cost.

Help to Buy Wales was set to close on 31 March 2021, but the deadline has now been extended by a year. The Welsh Government says a further extension until 2023 may follow, but this will depend on funding from the UK government.

From next April, Help to Buy Wales will operate with slightly different rules. The maximum price of properties sold under the scheme will reduce from £300,000 to £250,000, and all homes will need to be 'broadband-ready'.

What's happening to Help to Buy in England?

The Help to Buy scheme in England also offers equity loans of up to 20% (or 40% in London) and is set to undergo some changes of its own.

From April next year, the government will limit the scheme to first-time buyers only, and maximum price caps will be put in place.

The caps were set in August 2018 at 1.5 times the regional average first-time buyer price, and will range from £186,100 in the North East of England to £600,000 in London.

This changes to Help to Buy came after developers faced allegations of inflating the prices of new-build homes sold under the scheme.

In June, Which? published exclusive research revealing more than 5,000 homes bought under Help to Buy were resold at a loss, despite average house prices rising significantly.

The government has been under pressure to extend the current version of Help to Buy given the coronavirus outbreak, but has so far rejected calls to do so.

Help to Buy Scotland

The Help to Buy (Scotland) Affordable New Build Scheme (to give it its full name) was extended by a year in June, meaning it will now run until March 2022.

The scheme offers equity loans of up to 15% of the value of new-build homes priced up to £200,000.

The biggest difference with the Scottish scheme is that equity loans are provided interest-free forever. In England and Wales, interest starts to kick in on the loans after five years of owning the property.

Does Northern Ireland have Help to Buy?

Northern Ireland hasn't had a Help to Buy scheme since the closure of the nationwide mortgage guarantee scheme in December 2016.

Instead, the Northern Irish Government has focused its efforts on a couple of different options for first-time buyers.

These include shared ownership and the Rent to Own scheme, where buyers are given a three-year tenancy on a new-build property and are then provided with a 20% rent rebate if they buy the property at the end of the term.

new houses

Is now the time to buy your first home?

It's a complicated time to buy your first home, with the economic uncertainty around COVID-19 creating concerns that house prices will fall in the next 12 months.

Property markets around the UK have now reopened and the stamp duty cut has brought a flurry of buyers to the market, but this tax break will be of limited use to most first-time buyers.

People buying their first homes in England and Northern Ireland already benefited from a £300,000 stamp duty threshold, so only those spending more than this stand to save.

In Scotland, the threshold for first-time buyers has been temporarily raised from £175,000 to £250,000, meaning those buying at the top of this bracket would save £1,500.

In Wales, the threshold has also been raised £250,000, meaning buyers spending this sum on a home would save £2,450.

Mortgage issues for first-time buyers

The biggest issue facing first-time buyers in the current market is a lack of mortgage options, especially for those with deposits of 5% or 10%.

Around nine in 10 low-deposit mortgage deals have disappeared since the start of the pandemic, and lenders who are offering 90% mortgages are setting strict limits on who can apply and how much they can borrow. Some are even launching 'flash sales' to keep the lid on demand.

This means that unless you've got a 15% deposit, you might struggle to get a loan in the current climate, and new research by Aldermore shows 46% of first-time buyers are considering delaying their move for up to a year.

A lack of mortgage options can make schemes like Help to Buy and shared ownership seem more attractive, but both can be expensive in their own right, so do your research before rushing in.

If you are thinking of going ahead with buying your first home this year, consider taking advice from a whole-of-market mortgage broker, who can assess your financial circumstances to find a suitable mortgage deal.