The government’s help-to-buy scheme will be restricted in 2021 and then stopped altogether in 2023. With it being such a huge part of the market, what will happen when it’s finally finished?
What is Help-to-Buy?
Help-to-buy first launched in 2013. Since then it has been extremely popular, even being hailed as an “unmitigated success”. The scheme enables people to purchase a new-build home with as little as a 5% deposit. The government then contributes an interest free loan of 20%, rising to 40% in London, for the first five years.
In the five years since its launch, help-to-buy had helped more than 170,000 households purchase a home. 81% of those were first-time-buyers, and the scheme has also led to a housing supply growth of 74%.
Although particularly helpful for first-time-buyers, help-to-buy isn’t just used by new homeowners. By 2018, figures show that over 32,000 people had used the scheme to buy a bigger home. Some property experts have attributed this to increased house price growth across the country.
Help-to-Buy Will Be Ending from 2021
It has now been announced that from 2021, the government will be withdrawing the eligibility of non-first-time-buyers from the scheme. This relates to a reduction of 19% of buyers in the housing market, who without the assistance of help-to-buy, will be unable to up-size their home.
Also coming into effect in 2021 are regional price caps throughout the UK. This could especially affect town and city-centres as people are priced out of the market there.
There could be further issues when help-to-buy is completely axed in 2023. The average size and number of bedrooms per new build house is expected to reduce, in order to make homes more affordable.
In addition, the nearly 40% of private enterprise sales that were made in 2018 with the help-to-buy second charge will be lost. Mortgages for these buyers will only be available for the purchase of cheaper properties.
With ambitious house building targets in place by the government, there is another risk that ending help-to-buy will prevent them from being reached.
Ray Boulger, Senior Mortgage Technical Manager at independent mortgage advisers John Charcol, suggests a couple of ways forward for the housing sector from 2023. The first of these is the introduction of a similar scheme with a scaled back equity share.
Ray also recommended that property developers use some of their marketing incentive budget to provide a type of Mortgage Indemnity Guarantee insurance. However the best option in his opinion was for lenders to offer 95% LTV on new build properties.