Thinking about using the Help to Buy scheme in your house purchase? From 1st April 2021, the rules are changing so only first-time buyers will be able to apply, and property prices will be capped. While Help to Buy is set to end in 2023, we look at what the current changes mean to you right now.
Helping people to buy the home they need
Since 2013, the government’s Help to Buy scheme for England has proved enormously popular. It has enabled thousands of people to obtain a mortgage, buy a new home and secure their place on the property ladder.
However, the government always intended the scheme to be a temporary measure in the wake of the last financial crisis. At the time, many people were struggling to raise a deposit, especially with a boom in house prices. The scheme bridged the gap in finances, but economic times have changed and it is due to close in April 2023.
How will it work?
Properties need to be newly-built and the developer must be registered for the scheme in order to comply. Buyers need to provide a 5% deposit and the scheme will cover up to 20% of the property value (40% in London) in the form of an equity loan.
As a result, you may only need to apply for a 75% mortgage (or even 55% in London). This makes you less of a risk to lenders, and potentially opens up deals with more favourable rates.
The equity loan is interest-free for the first five years. After this, interest is charged at 1.175%, rising in line with the Consumer Price Index plus 2% each April. You are able to make repayment of all or part of the loan at any time.
What’s changing with Help to Buy in 2021?
There are two big changes coming into place from 1st April 2021 for Help to Buy in England. (Note that the Scottish and Welsh Help to Buy schemes are not affected). Focusing help on those who need it most, they relate to who can apply, and the value of the property they can apply for.
First-time buyers only
The scheme will be available only to first-time buyers, and they must be purchasing a new-build property from a developer registered for the scheme. Those already owning homes are assumed to have equity in their property and be successfully maintaining their mortgage.
Regional price caps
The current scheme allows for a maximum purchase price of £600,000 for a property anywhere in England. For purchases completing from 1st April 2021, the new scheme’s upper limit will vary according to where you are. This is broken down by region, as shown in the table below:
Price cap for Help to Buy homes
April 2021 to March 2023
|Yorkshire and The Humber||£228,100|
|East of England||£407,400|
(source: Government Help to Buy website)
What these changes mean for you?
If you’re buying your first home, and its value is within the price cap, then these changes won’t affect you. You’ll only need to think about applying before Help to Buy is phased out in 2023.
However, if you want to apply under the current scheme, then you will need to move quickly. If you’re not a first-time buyer, or your property exceeds the regional price cap, your deadline for completion is 31st March 2021. Make sure you’re in a solid position to sell your current home and make an offer on your new property.
Whatever your situation, you can still apply for the current Help to Buy equity loan if your purchase will complete before 1st April 2021. Or you can apply for the new scheme from 16th December 2020 for house purchases due to complete after the deadline.
The only exception is for new properties reserved before 30th June 2020, where you have until 31 May 2021 to complete. For further information, please download the government’s guide to Help to Buy 2021-2023 for homebuyers.
We can help you if you’re applying for either the old or new schemes, before or after the 31st March deadline. Please make sure the product code in your application refers to the correct scheme, as it will not be possible to change this once submitted for processing. If you do wish to change, you’ll need to start a whole new application.
Driving demand: the Stamp Duty holiday
Restrictions around the current COVID-19 pandemic made it difficult to buy and sell property, creating a slump in demand. In July 2020, the government decided to stimulate the housing market by removing Stamp Duty on properties worth up to £500,000. This has made buying a new home very attractive for those within that price bracket, and sales are healthy.
However, we don’t know when the Chancellor will end the Stamp Duty holiday. So, it’s seriously worth aiming to complete your house purchase as soon as possible to save yourself thousands of pounds. Especially if you are using Help to Buy.
Getting a mortgage with the new Help to Buy 2021
Applying for a mortgage can seem challenging, even to people on their second or third home, whether or not using Help to Buy. If you need guidance on the process and honest, impartial advice on the most appropriate lenders, do get in touch.
Our team routinely handles mortgages for people in every kind of situation, and one of our experts will be happy to help you. The first consultation will uncover all your options – it’s always free and carries no obligation.