Price caps revealed for Help To Buy Scheme

With a new year comes new changes, and for homebuyers, one of the first and most significant changes in 2021 is the government’s Help to Buy Scheme: Equity Loan Scheme. From April, eligibility will be limited to first-time buyers, and a new region-to-region price cap will be introduced.

The government-funded scheme was launched in 2013 to allow first-time buyers and homeowners to purchase a newly built property worth up to £600,000. Since that time, more than 210,000 homes have been bought using Help to Buy equity loans, according to official statistics.

Currently, under the scheme, buyers need only a 5% deposit to secure a mortgage. They can borrow 20% of the purchase price (40% if buying a London property) with a government top-up loan and arrange a mortgage on the remaining balance.

While the 5% deposit will remain under the new rules, the government will place a cap on the maximum amount developers can charge for Help to Buy properties. This will be fixed at 1.5 times the average regional first-time buyer price as forecast in 2018. For example, in London, the maximum price will be £600,000 while in the North East and North West it will be £186,100 and £224,000 respectively.

Concerns

According to the government, the price caps will keep new home prices closer to the average regional first-time buyer property price. However, the tighter restrictions have come in for fierce criticism from many developers, renters and estate agents because aspiring homeowners may find themselves locked out of the housing market. In the North West, the average price of a new build could soon be higher than the price cap, and consequently, many prospective first-time buyers will struggle.

The cap might also prove problematic for developers as the scheme might not be as lucrative as it has been. To accommodate the caps, they will either sell properties below market value, which is unlikely or adapt what they build, so they sit below the cap. For example, build more flats in expensive areas instead of houses. Or they might leave the scheme, which could mean a shortage of affordable properties.

Other Routes

There are other routes for first-time buyers to get on the property ladder if they are priced out of the scheme. These include shared ownership (known as part buy, part rent) and guarantor mortgages where a parent or close family member uses their savings or property as security.