What do the changes to Help to Buy mean for homebuyers?
The Help to Buy scheme, has enabled buyers with a 5% deposit to borrow up to 20% of the value of a new build home outside Greater London (40% in Greater London) from the government, and then mortgage the remaining 75% of the cost of the property.
The scheme has been hugely successful. According to data from the Ministry of Housing, Communities & Local Government (MHCLG), over 300,000 first time buyers have used Help to Buy over the past five years and have been able to access better mortgage rates than they would had they applied for a 95% mortgage (i.e. if they had a 5% deposit and financed the remainder with a 95% mortgage).
The existing scheme was due to expire in March 2021, so house builders and home buyers have been looking to government for clarity whether or not it would end in 2021.
In November’s budget, Philip Hammond extended the Help to Buy scheme to March 2023, when it will end and not be replaced. However, he also made some significant changes:
- From April 2021 to end March 2023, there will be new regional price caps set at 1.5 times the average forecast first-time buyer prices in the area. For example, in Greater London it will continue at 40%, whilst in the South East the cap will be set at £437,600, and in the North East it will be £186,100.
- From April 2021 to end March 2023, Help to Buy will only be offered to first-time buyers.
The announcement has given some certainty for the next two years to housebuilders and buyers who are currently saving for their deposit, but it also creates a ticking deadline for upsizers and those who want to avoid the price caps.
Help to Buy has been very helpful for homeowners who want to upsize, but do not have quite enough equity in their current home to re-mortgage. For example, buyers who need to move to a more expensive area for their work, or couples in new relationships who want to buy a home large enough for both their families. In both these cases, from April 2021, if they are already homeowners, they will no longer be eligible for Help to Buy.
In addition, from April 2021, homes will only be eligible for Help to Buy if they fall within defined value criteria, which is area specific. Whilst this does not affect homes in Greater London, the value of property just outside the area eligible for Help to Buy will fall to £437,000 – or less.
Whilst the logic for capping areas seems clear, it will create strange and unfortunate inconsistencies. One example is Northwood – a popular area North West of London which is partly in Greater London and partly outside. Therefore, within a few hundred yards, one home may benefit from 40% Help to Buy up to £600,000 and another just 20% up to £437,000.
As a result of the new caps, house builders might now only build smaller homes that will be within the caps outside Greater London, and continue to build larger properties within Greater London.
Another impact of the caps could be seen in the specification of new homes. For example, there may be no wriggle room for house builders to fit top quality kitchens, bathrooms, lighting and other fittings in property outside London, but they will have more leeway in Greater London.
The advice for those thinking about buying a new home, and wish to benefit from the current Help to Buy scheme, is to accelerate their decision process because, once the current large new homes have been sold, they are unlikely to be replaced.
For example, buyers at Harvester Close, Troy Homes’ development in Royston, currently benefit from Help to Buy up to £600,000. But, post March 2021, with Help to Buy capped at £407,000 here, fewer large homes could be built in Royston because there will be fewer buyers who can afford to buy them.
Whilst it is right that Help to Buy should come to an end, the changes announced might result in anomalies in what is built and who benefits; which is a shame. However, it does mean that buyers who act quickly can, for a short period, benefit from the current Help to Buy scheme before the more expensive properties are sold and not replaced.