Help to Buy

The Help to Buy: Equity Loan has ended – what next?

PLEASE NOTE THAT THE HELP TO BUY: EQUITY LOAN OFFICIALLY ENDED IN MARCH 2023.

Help to Buy was a government-backed scheme which aimed to help first time buyers get onto the property ladder.

The alternative housing product provided eligible buyers with an equity loan (also known as shared equity) of up to 20% of the value of a Help to Buy new-build home. The Help to Buy government scheme provided a 20% loan so the buyer only needed to raise a 5% deposit, with a 75% mortgage making up the rest.

When did the Help to Buy scheme end?

The scheme closed to new applicants on Monday 31st October, 2022. However, the Help to Buy: Equity Loan officially ended on Friday 31st March, 2023. 

If you were a buyer eligible for the equity loan, and you submitted your Help to Buy application before the cut-off, your homebuilder must have finished building your home by Saturday 31st December, 2022. You then legally had to complete and get the keys to your new property by 6pm on Friday 31st March, 2023. Homes England confirmed that there will be no extensions or exceptions.

What are some alternatives to the Help to Buy scheme that I can apply for?

While the government Help to Buy scheme has enabled thousands of buyers to take their first step onto the property ladder, there are plenty of other homeownership and alternative rental options available to first time buyers.

Meeting the demand for a more affordable route onto the housing ladder, Shared Ownership could be an ideal substitute for those who were interested in the Help to Buy loan. This part-buy part-rent scheme allows eligible purchasers to buy a share of a new-build or resale home, paying a mortgage on the owned portion and a below-market-value rent on the remainder. As the purchaser only needs a mortgage for the share they’re buying, the amount of money required for a deposit is often much lower compared to those on the open market.

Alternatives to Help to Buy include:

• First Homes: This initiative helps local people and keyworkers buy a home in areas of high demand, with developers offering homes to first time buyers with a discount of 30% to 50% of the market value of the property.
• Deposit Unlock: Available from participating developers, a 5% deposit scheme on new-build properties where the home builder insures the mortgage to help the buyer get a better Loan-to-Value mortgage from lenders.
• Discount Market Sale: A low-cost homeownership product where a new-build property is purchased at a discounted price. This discount is usually around 20% to help low and middle income earners who live in the borough.
• Discount Full Ownership: Available in London, this scheme allows buyers to purchase 100% of a property at a discounted rate of at least 20% compared to local market prices.
• Intermediate Rent: A rental scheme aimed at helping buyers who plan to save a deposit and purchase a property within five years, giving them the option to rent a new or refurbished home at a subsidised rate.
• London Living Rent: Available to renters in the capital, homes are offered on tenancies of minimum three years with below-market value rent. The tenant can go on to make an offer to purchase the property on a Shared Ownership basis during the tenancy.
• Rent to Buy: Working households are able to rent a new-build home on an Intermediate Rent basis, with the property being let a subsidised rate of 20% and a fixed rate of inflation. The tenant can go on to make an offer to purchase the property on a Shared Ownership basis during the tenancy.
• Lifetime ISA for deposits: An Individual Savings Account (ISA) which allows buyers to save up to £4,000 every tax year to put towards their first home, with the government adding a 25% bonus on top of what is saved, up to a maximum of £1,000 per year.

You can find out more about these Help to Buy alternatives on Share to Buy.

A history of the Help to Buy scheme

The government Help to Buy scheme was introduced in 2013 to assist households facing financial difficulties in saving money for a new home deposit. Through this initiative, home-buyers had the opportunity to secure a mortgage with a 5% deposit. Initially, the Help to Buy scheme was open to all individuals, including first time buyers and existing homeowners. This initiative was active from April 2013 until May 2021.

The scheme proved beneficial for many aspiring homeowners who were grappling with escalating house prices and increasing down payments. Eligible buyers were able to receive a Help to Buy: Equity Loan up to 20% of the property’s purchase price, with a maximum limit of £600,000. In London, the limit was set at 40%. Although predominantly popular among first time buyers, the assistance was accessible to anyone seeking to purchase a home. After changes to Help to Buy in 2021, this eligibility criteria changed and the equity loan was available to first time buyers only.

The original Help to Buy scheme included additional conditions related to interest rates on the equity loan and the duration of the mortgage. During the first five years, home-buyers were exempted from paying interest on the equity loan. However, starting from the sixth year, they were required to pay 1.75% interest on the equity loan, which would then increase annually in accordance with the Retail Price Index plus 1%.

Furthermore, the scheme had price limits in place, and buyers were only allowed to purchase properties from authorised sellers. Therefore, not all homes on the market were eligible during the initial phase of the program.

From 2013 to 2021, the scheme played a significant role in increasing the number of homeowners in England.

Help to Buy in stats

Government data indicates that over 355,000 Help to Buy homes were acquired using an equity loan, amounting to a total value of close to £100 billion in houses sold through the scheme.

• The scheme facilitated the purchase of 291,903 Help to Buy properties.
• First time buyers accounted for 82% of all Help to Buy homes bought through the scheme.
• The total value of Help to Buy loans provided amounted to £17.4 billion.
• The total value of Help to Buy properties purchased reached £72.9 billion.

Primarily, the scheme increased access to houses for first time buyers, including terraced and semi-detached properties, although a smaller proportion used it for purchasing flats:

• 18% of scheme users bought Help to Buy flats.
• 82% of users utilised the scheme to purchase houses, ranging from detached to semi-detached and terraced houses.

Help to Buy has also had a significant impact on individuals with lower household incomes:

• 51% of borrowers had household incomes between £20,000 and £50,000.
• 2% of applicants had household incomes below £20,000.
• 5% of applicants had household incomes exceeding £100,000.

Whilst the Government Help to Buy scheme has now ended, there are a number of alternative schemes including Shared Ownership and other affordable home-buying and rental options.

Help to Buy in London

To reflect the higher property prices in the capital, the government increased the upper limit for the equity loan from 20% to 40% for buyers in London. With London Help to Buy, the government provided this 40% loan and the buyers still only needed to raise a 5% deposit, but with a 55% mortgage making up the rest of these Help to Buy apartments.

Why buy a Help to Buy home? 

This first time buyer scheme made getting on to the housing ladder more accessible to many eligible buyers by reducing the amount required for a deposit when compared to buying a property on the open market.

Who was eligible for the Help to Buy: Equity Loan?

The general Help to Buy eligibility criteria was as follows:

• You must be at least 18 years old.
• You must be a first time buyer, meaning that you have never owned another property either in the UK or abroad. If you are purchasing a property with another person, you must both meet the definition of a first time buyer to benefit from the scheme.
• You will require at least a 5% deposit of the full purchase price of the property.
• While there are no minimum or maximum income brackets, you must be able to fund at least 80% (60% in London) of the purchase through a combination of deposit and mortgage.
• The value of the property you’re purchasing can’t be over the regional price cap for your area – full list of price caps below.
• You must be able to prove you can afford the mortgage repayments and other outgoings on the home you wish to buy. There is a standard Homes and Communities affordability calculator which will determine whether the property is sustainable long term.
• Part Exchange is not available through the scheme.
• You cannot sub-let your Help to Buy home.
• The Help to Buy: Equity Loan is subject to eligibility, terms and conditions.

What were the costs of a Help to Buy home?

If you wanted to buy a new-build home worth £250,000, the Help to Buy: Equity Loan would break down as follows:

• £50,000 loan from the government.
• £12,500 deposit put down by you.
• £187,500 mortgage from a mortgage lender.

The Help to Buy: Equity Loan was also interest-free for five years. After that, the purchaser pays an annual fee of 1.75% on the amount of the outstanding loan, however this fee will increase each year by inflation (Retail Price Index (RPI) + 1%.

The purchaser can start repaying the equity loan after they’ve owned the home for a year, but they would need to be able to pay a minimum of 10% of the property value at the time of repayment.

When they want to sell their home, the owner will need to repay the percentage equity loan that is still outstanding. So, for example, if they originally bought 80% of the property and hadn’t repaid any of the equity loan, their repayment on selling would be 20% of the market value at the time when they sell.

In practice, this means:

• You would take a 20% equity loan to buy a property worth £250,000, equating to £50,000.
• When you sell the property, it’s worth £300,000.
• You will repay £60,000 as this is 20% of the current value of your home, not the amount you borrowed.
• In turn, if the property had dropped in value, you’d pay less than you borrowed.

Rules of buying a Help to Buy home

Help to Buy was only available on new-build developments where Homes England had a registration agreement with the housebuilder. Help to Buy houses and Help to Buy flats were available through the scheme, but the value of the property you purchased couldn’t be over the specified regional price caps. The regional price caps for Help to Buy were as follows:

• London: £600,000
• South East: £437,600
• East of England: £407,400
• South West: £349,000
• East Midlands: £261,900
• West Midlands: £255,600
• Yorkshire and the Humber: £228,100
• North West: £224,400
• North East: £186,100

What are the differences between Help to Buy and Shared Ownership?

There are significant differences between Help to Buy and Shared Ownership, but the key difference is that with Help to Buy, you purchased and legally owned all of the property. In contrast, the Shared Ownership scheme allows buyers to purchase a share of a property (usually between 25-75%), paying a mortgage on the part they own and a subsidised rent to their provider on the rest; the buyer can then choose to go on to buy more shares through a process known as staircasing.

A key point to remember here is that the deposit put down on a Help to Buy home would generally include a sizeable boost from the equity loan which made up the difference between the mortgage and the purchase prices, while the deposit on a Shared Ownership property will be generally between 5-10% of the share you’re purchasing – not the full market value of the property.

Help to Buy was generally provided by housebuilders while Shared Ownership is offered by housing associations. However, there were numerous housing associations who also offered homes through the Help to Buy scheme.