What was Help to Buy?
Help to Buy was a government-backed scheme in the UK which was launched in 2013 with the aim to help people get onto the property ladder or move up it. The scheme was available to both first-time buyers and an older version also allowed existing homeowners. it offers a range of benefits to help make buying a new home more affordable.
One of the main benefits of the Help to Buy scheme was that it enables buyers to get onto the property ladder with a smaller deposit. Typically, a mortgage lender will require a deposit of around 10% or more, but with Help to Buy, buyers can purchase a home with just a 5% deposit. The government provides a loan of up to 20% of the property’s value (40% in London) which helps to make up the remaining deposit.
The scheme closed to new applications in October 2022. As things stand there has been no adequate replacement to help more people onto the housing ladder like how this scheme did.
Impact of Help to Buy ending?
It was always known the Help to Buy scheme wouldn’t run forever. However, the time of the scheme closing in 2022 couldn’t have come at a worse point. The backlash of Liz Truss’s tenure as PM lead to mortgage rates skyrocketing and uncertainty around the economy saw a slowdown in demand for people wanting to move house.
Many builders and developers have announced they plan to slow the number of homes being built this year due to reduced demand from buyers. With the mounting housing problem in the UK with failure to build enough homes year in and year out this could be alarming for the future.
Construction accounts for a huge proportion of jobs in the UK and any slowdown in building homes could have a nock on effect unemployment. With a general election due in 2024 there have been reports from The Times newspaper that Rishi is considering bringing some form of version of this back prior to the next election.
The benefits and cons of the previous Help to Buy scheme
Benefits:
- Affordable deposits: One of the most significant benefits of the Help to Buy scheme is that it enables first-time buyers to get onto the property ladder with just a 5% deposit. Whereas with new build properties, previously many lenders wanted in excess of 15% available as a deposit.
- Access to better mortgage rates: Another benefit of the Help to Buy scheme is that it enables buyers to access better mortgage rates. With the government providing a 20% equity loan, lenders are more willing to offer more favourable rates due to having an overall lower loan-to-value mortgage, which can help to reduce monthly payments and make owning a home more affordable.
- Reduced initial costs: As the equity loan only cost£1 per month for the first 5 years it offered a cheaper start to life for many homeowners, with interest rates as high as they are at the moment this could be a welcome relief to any wannabe homeowners.
Cons:
- Limited availability: While the Help to Buy scheme offers many benefits, it is only available on selected new-build properties. This means that buyers may have limited options when it comes to choosing a home. Additionally, some developers may choose not to participate in the scheme, further limiting the available options.
- Repayment requirements: While the government provides a 20% equity loan, this is not a gift but rather a loan that must be repaid after five years or when the property is sold. This means that buyers may face additional financial pressure in the future, as they will need to repay the loan while also paying off their mortgage.
- Potential for negative equity: Another potential drawback of the Help to Buy scheme is the potential for negative equity. If property values fall, buyers who have taken out an equity loan may find themselves owing more on their property than it is worth. This can be a significant financial burden and may make it difficult to sell the property if necessary.
Conclusion
In conclusion, the Help to Buy scheme offered many benefits to first-time buyers in Norwich, including affordable deposits and access to better mortgage rates. However, it is important to consider the potential drawbacks, such as limited availability, repayment requirements, and the potential for negative equity. Although nothing formal is laid out on if and when it will return and what version of it will be available. It would still be a welcome return to many first time buyers.
