The way forward for the government’s flagship Help to Buy equity loan scheme remains in serious doubt in front of next week’s Autumn Budget.
Between its launch in April 2013 and the end of March this year, approximately 169,000 properties have been bought using Help to Buy equity loans, with eight in 10 of those going to first-time buyers.
But Assistance to Buy isn’t universally popular, with critics arguing it has inflated the price of new-build homes and given financial aid to people who don’t require it.
The scheme is due to close in 2022, but the government is yet to offer clarity on whether or not this intends to extend it – and many expect the Chancellor to use next week’s Budget to verify his plans.
Here, we take a look at what could affect Help to Buy in the Budget, and provide advice for prospective first-time buyers with small deposits.
Mortgage lenders demand Help to Buy clarity
With the Autumn Budget just 7 days away, the controversy over the way forward for Help to Buy continues, and industry figures are getting edgy.
The Intermediary Mortgage Lenders Association (IMLA) has urged the federal government to clarify the future of the scheme, having thrown its very own weight behind an extension.
Kate Davies from the IMLA says: ‘Lenders and borrowers place heavy reliance upon the scheme, along with a major step change to arrangements would risk significant market disruption.
‘If changes to the scheme are now being proposed, lenders will require appropriate notice in order to plan in advance.’
In September, a government spokesperson told Which?: 'The government has committed to the scheme to March 2022 and recognises the need to create certainty for prospective homeowners and developers beyond this date.'
But may help to purchase be looking for the scrapheap? Continue reading for 3 possible outcomes.
1. Help to Buy could be extended
The government could look to extend the scheme in its current form.
Who wants this and why?
Housebuilders: prior to the scheme was once extended in 2022, their shares were dropping amid rumours it would be scrapped. Once the scheme was extended, shares rose 2.6% in a day. Ultimately, Assistance to Buy provides a major profit boost for developers.
Thousands more first-time buyers can use Assistance to Buy to buy a property, and an extension would support the government’s try to build hundreds of thousands of recent homes.
Critics say that the scheme in its current form is inefficient. Around 6,700 buyers with household incomes in excess of lb100,000 have purchased a property using Assistance to Buy, calling into question whether it’s helping people who require it probably the most.
Then there’s the issue of price. New-build homes already attract reasonably limited, and critics claim that Help to Buy inflates prices even further.
An extension within the short-term could supply the government with respite as it assesses long-term options (such as the Starter Homes Initiative), however, if the scheme ended up being to continue in the same form, this may well have been announced by now.
2. The scheme could be limited to people who can’t afford to buy around the open market
Who wants this and why?
First-time clients who discover that new-build homes are too expensive, despite the help of an equity loan.
Would provide a second opportunity to some first-time buyers with lower incomes, along with a tapering would allow the government to appease critics without sacrificing housing targets.
In February 2022, the number you can borrow through a Assistance to Buy equity loan (20% in England) was extended to 40% for all those living in London, so stricter affordability rules would represent a significant alternation in policy. Tightening affordability could mean developers need to build cheaper homes, which could mean fewer being built.
A two-year extension with amended affordability rules could be a crowd-pleaser in next week’s budget, but with housing policy nothing is certain.
3. Assistance to Buy equity loans might be scrapped entirely
Who wants this and why?
Critics who would like a bolder and much more dynamic approach to improving affordability for first-time buyers.
Could theoretically result in some type of government assistance that isn’t dependent on expensive new-build homes.
Removes one of the main routes to homeownership for first-time buyers. Leaves the federal government with challenging housing targets and also the must find different ways of helping renters onto the property ladder.
While Help to Buy isn’t everyone’s cup of tea, it’s unlikely the federal government will scrap it completely unless there’s an alternative scheme waiting in the wings.
How do Help to Buy equity loans work?
In England, Help to Buy schemes involve the government offering a 20% (or 40% working in london) equity loan on new-build properties priced up to lb600,000.
This means first-time buyers and residential movers can purchase a property with a 5% deposit, and obtain a 75% (55% working in london) mortgage to pay for the remaining amount.
Help to Buy alternatives
If you’ve saved a 5% deposit, there are a number of alternatives to Assistance to Buy.
95% mortgages have become increasingly competitive this year, having a development in the amount of lenders coming to the market.
One from the main benefits of a traditional mortgage is you’ll be able to buy a current home (not just a new-build, just like Help to Buy) and you won’t have to worry about paying down an equity loan or paying interest five years down the road.
Shared ownership scheme
Shared ownership allows buyers to purchase a share of 25-75% in a property and pay rent around the rest.
It’s easy to ‘staircase’ to full ownership, but the combination of mortgage repayments, rent and service charges can make these schemes very costly.
Help from a family member
The ‘Bank of Mum and Dad’ remains popular with buyers seeking to the ladder and, as well as gifted deposits, there are a number of mortgage products available for this purpose.
For example, parents who don’t have the cash to offer in advance can consider joint or guarantor mortgages.
Advice in your mortgage options
If you’re looking to purchase your first home and want suggestions about the easiest way of financing it, it can be useful to make contact with a whole-of-market mortgage broker.