Property

New Help to Buy Scheme may lock out potential home-buyers

Jonathan Kidoushim - Cavendish Legal Group
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1st April 2021
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From April 1st the existing Help to Buy Equity Loan scheme is being replaced with a new scheme that is restricted to first-time buyers only and introduces regional price limits.

Jonathan Kidoushim, partner at Cavendish Legal Group looks at what the changes mean for the property market in the UK

It’s well documented that the past 12 months have been something of a rollercoaster ride for the property market. The outbreak of coronavirus effectively closed it down, before the Chancellor then turbocharged it with the introduction of the SDLT holiday which certainly captured the headlines; and rightly so given the dramatic effect, it had on the market and conveyancing sector in particular.

The SDLT holiday was not the only major policy change taking place in the property sector as the new version of Help to Buy, aimed at first-time buyers only, goes live on April 1. Although meant as a boost, it may actually put the brakes on house purchases in some cases.

Since Help to Buy was first launched in 2013 the scheme allowed first-time buyers and homeowners to use the government-backed Help to Buy Equity Loan for new-build home purchases. The launch of the new scheme means only first-time buyers will be able to apply for the loan, which must be used towards buying a new-build home, and there will be regional caps in place.

Of course, anything that helps first-time buyers, particularly in this climate, has to be seen as a good thing. To that end the scheme is great for a first-time buyer purchasing a new build directly from a developer But, as it stands, it is hard to know whether overall this will be a positive move as there were still a significant number of home-movers using the original Help to Buy scheme. Now they have been excluded which may actually create a stutter in the market, as current homeowners who are potential buyers may not be able to upsize.

The aim of the scheme is to help people with small deposits to get on the ladder, but the way it works from April 1, may stop people who currently own property from upsizing into a larger new build property. They may struggle to acquire the deposit required without the government boost, but would not qualify because they wouldn’t be first time buyers. Inevitably this will lead to fewer completions simply because fewer people are eligible. That said, it may not be as dramatic as feared because what we are now seeing is more lenders starting to raise the loan-to-value (LTV) rates with 90% and 95% mortgages coming back to the market.

In addition, in his recent budget, the Chancellor announced more details of the new government-backed 5% mortgage. Under the scheme, first-time buyers, home movers and previous homeowners with a 5% deposit will have access to 95% LTV mortgages. Putting aside the wider issue of who will be liable for any defaults, e.g. the taxpayer, it may be the case that it will pick up those home-buyers with lower deposits who do not qualify for Help to Buy any longer.

The Government has committed to ensuring the property market remains in good shape, being such a key driver of the wider economy. For first (or even second) time-buyers struggling to find the funds for the deposit, prospects are improving with both the new HTB scheme and the government-backed loans.

Ultimately, what these changes really underline is the importance of getting the right advice from the start of the property buying process, and working with brokers and conveyancers who are expert in the area, whether you’re a first-time buyer or a homebuyer looking to upsize.

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