Help to buy is extended (and limited)

February 20, 2020
Taryn Lee-Johnston

The Help to Buy scheme has been both extended and limited.  It’s been extended because it now runs to 2023.  It’s been limited because it’s now only open to first-time buyers.  Another new twist to the scheme is that the government has introduced new price caps for properties bought under the scheme.  Only London keeps the £600K cap, in all other places, it is 1.5 times the average forecast first-time buyer price for the region.  Here is a quick look at what the Help-to-Buy scheme could mean in practice.

Help-to-Buy can make it easier to get a mortgage, but first-time buyers still need to get one

Effectively the Help-to-Buy scheme provides a deposit of up to 20% of the purchase price of your home (40% in London).  This can lower the loan-to-vehicle ration of a mortgage and therefore make it easier to get one.  Having said that, there are other barriers to getting a mortgage and first-time buyers will generally have to deal with them on their own (potentially with the help of a professional financial adviser).

For example, the Help-to-Buy scheme cannot change a person’s credit history, so if a first-time buyer has a poor track record of financial management, just being approved for the scheme may not be enough to convince lenders to part with the rest of the necessary cash.

Similarly, first-time buyers with variable incomes may still struggle to convince lenders that they can meet the repayments over the long term, as might those in professions which might be vulnerable to a hard Brexit.

Help-to-Buy loans are only interest-free for five years

At the end of the five years, buyers who wish to stay in their homes can opt either to make interest payments (without reducing the loan principal) or to buy the government out of its share in their home.  The value of the government’s stake in the property will be determined by the value of the home at the time the (former) first-time buyer applies to buy out the government rather than buy the purchase price at the time of the original sale.  This is a major difference to standard loan products such as traditional mortgages, where the borrower simply repays the amount borrowed and gets the full benefit of any capital appreciation.

Help-to-Buy loans are only available on new-build properties

If you go down the Help-to-Buy route then your choice of properties will be constrained not just by your location and budget but by the need to meet the requirements of the Help-to-Buy scheme, in other words, to select from qualifying new-build properties.  Not to put too fine a point on the matter, this could put first-time buyers into a position where they wind up living in a home they have chosen only for its practical benefits rather than because it’s a place they really love and want to live over the long term.

In short

There are a lot of up-front fees involved in buying a property and the purchase process can be lengthy.  There can also be significant implications to buying a property and then discovering that it was the wrong thing to do, especially if it turns out that the reason it was the wrong thing to do is because you can’t afford the mortgage.

The Help-to-Buy scheme can make it easier for first-time buyers to get on the property ladder, but it does have its nuances and implications and it’s important to understand them thoroughly and be aware of what they will (and could) mean for you before you take a final decision on whether or not to make use of the scheme.  Professional advice can help here.

Your home may be repossessed if you do not keep up repayments on your mortgage.