January 20, 2021Property News, Sales

Help to Buy: all change in 2021

The Government’s Help to Buy initiative was introduced back in 2013 and has taken different forms over the years, including a mortgage guarantee, an equity loan and an ISA. Official figures published in 2018 showed more than 420,000 property purchase completions have taken place using one or more of the Help to Buy schemes, with thousands of other buyers taking advantage of the scheme since.

Help to Buy: re-launched for 2021

So what’s changed? This year, the Government’s Help to Buy scheme has re-launched as an exclusive equity loan offering, and completions under this revised scheme can take place from 1st April 2021 until 2023. Under the old rules, existing homeowners could also use Help to Buy but they are dropped from the scheme moving forwards and only first-time buyers will now benefit. There is also the introduction of fixed ‘regional full purchase price caps’ that limit the value of properties bought using Help to Buy, depending on where they are geographically located.

Can I apply for Help to Buy this year?

There are strict guidelines as to who can use the scheme and the value of the property they can purchase. These are known as the ‘Eligible Purchaser’ and ‘Eligible Dwelling’ criteria. They stipulate, among other conditions, that:-

  • The purchase must be a first-time buyer, and not have owned a home alone or with others in the past
  • They must be buying a brand new home from a house builder registered to take part in the scheme
  • They must not be buying a property to rent out or for use as a second home
  • All those involved in the purchase must be eligible first-time buyers
  • Purchasers must be able to provide a cash deposit equal to 5% of the property’s sold price 
  • Purchasers must pass mortgage sustainability checks to qualify
  • Purchasers must buy within the regional price caps – you’ll find a full list of areas and their price caps here

How Help to Buy will work in 2021

Once proof of a 5% cash deposit is established, eligible purchasers will be able to apply for a Help to Buy equity loan worth up to 20% of the full purchase price of a new home outside of London, and up to 40% in London. The rest of the purchase price (75% outside of London and 55% in London) should be financed by a specialist Help to Buy mortgage.

As well as repaying the mortgage, purchasers will also have to pay back the Government’s equity loan. The loan is interest-free for the first five years and then interest fees start at 1.75% and rise each year in April, by the Consumer Prices Index plus 2%. Borrowers are also charged a monthly management fee of £1 for the term of the loan. The loan should be repaid at the end of the equity loan term, when the owner pays off their repayment mortgage or when they sell the property.

Why is Help to Buy beneficial for the housing market?

It’s easy to dismiss Help to Buy if it doesn’t directly apply to you but the boost it provides to the wider property market is undeniable. Help to Buy has allowed more than 365,400 first-time buyers to own their own home with a deposit as small as 5%, which frees up rental properties for new tenants. 

The scheme also supports the construction industry, and allows house builders to create thousands of new homes of different tenure types – private, shared-ownership and social – for a variety of home movers, tackling the chronic shortage of housing in the UK in the process.

If you would like to know more about Help to Buy or you are a first-time buyer looking to purchase outside of the scheme, please get in touch.

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