After seven years of providing equity loans to homebuyers in England, the Government is updating the terms of its Help to Buy scheme for new applications with effect from December 16th 2020.
In this blog post we’ve outlined the key changes affecting eligibility for Help to Buy moving forward, and summarised what this means for prospective homebuyers looking to purchase a new property through the scheme.
Help to Buy: A brief history
When the British Government introduced its Help to Buy equity loan scheme in 2013, it finally seemed as though there was a glimmer of hope for those struggling to afford a new home in England. The combination of rocketing house prices and rising deposits had meant many were finding it difficult to afford a property on the open market. Instead, either forced to move home or live in rented accommodation.
The arrival of Help to Buy sought to change all that. Open to anyone in England, the scheme worked in partnership with UK housing developers, to offer a five-year interest free loan to those looking to purchase a new build flat or house.
While the amount was capped at £120,000 outside of the capital, those living in London were eligible for a maximum £240,000 under the scheme. This meant that qualifying buyers could purchase a property with just a 5% deposit, with the government fronting up to 20% of the remaining purchase price (40% in London) and a mortgage making up the rest.
So what’s changed?
Well, the good news is the Government will be extending Help to Buy into 2023 so there is still financial help for those looking to purchase a new build home. The downside is some of the previous lending criteria and conditions of the scheme have been updated; meaning some buyers are no longer eligible.
In fact, only first time buyers can apply for Help to Buy under the new scheme.
This change is one of the most significant differences between the first Help to Buy equity loans and those you can apply for from 16th December. While Help to Buy has historically been open to anyone, even current homeowners, only first time buyers will be able to apply for an equity loan under the conditions of the new scheme.
This means that if you currently own your home and were hoping to leverage Help to Buy to move to a bigger property, you’ll no longer be eligible to do so.
What about loan values and deposits?
In terms of deposits nothing has changed. If you’re applying for an equity loan under the new Help to Buy scheme you’ll still only need a minimum 5% deposit to proceed. What has changed however is how much you can borrow.
While previous loans were capped at £240,000 for London and £120,000 for the rest of England, loans under the new scheme are governed by a regional price cap, which varies from North to South across the country. In London, for example, you can apply for a property up to to a maximum purchase price of £600,000. In the North East, it’s a different story, with the maximum purchase price capped at £186,100.
Find out more about the Help to Buy regional price caps 2021 – 2023.
Loan wise, the amount the government is willing to lend under the scheme remains up to 40% for those living in London boroughs, and up to 20% for those buying in other English counties. This means that depending on the equity amount you’re eligible for, you’ll own either 60% or 80% of your property, with the government owning the remaining share until the loan is repaid.
Are Help to Buy loans still interest free for the first five years?
Yes, as with the previous Help to Buy scheme, you won’t be charged any interest on your Help to Buy loan until year six. It’s also important to remember that because Help to Buy is an equity loan, the amount you repay is proportionate to the value of your house at the time, which may go up or down depending on the housing market.
Can I sell my home if I haven’t paid off my Help to Buy loan?
Yes, you can still put your home on the market if you have outstanding Help to Buy equity loan repayments. The remaining loan balance will simply be recouped in full at the point your sale completes.
When do the changes to Help to Buy come into effect?
The new Help to Buy scheme comes into effect in April 2021 and will last for two years. Applications for the scheme will start from 16th December 2020, so if you’re hoping to qualify for the existing Help to Buy scheme (open to anyone, not only first time buyers) you have until 15th December 2020 to get your application in.
Still have questions about Help to Buy?
Get in touch with our expert home buying team. At Threshold, we partner with many of the UK’s leading housing developers to approve new buyers for loans, and our brokers can run a soft credit check with you over the phone to determine a lending decision without affecting your credit score.
Your home may be repossessed if you do not keep up repayments on your mortgage.