Buyers looking to use HTB in England should act sooner rather than later
James Chidgey is new homes relationship manager at Mortgage Advice Bureau
The current Help to Buy Equity Loan scheme in England and London comes to an end in March 2021, which might sound like plenty of time, but in reality buyers will need to exchange contracts by the late summer to have any realistic hope of getting the keys to their new home by March 2021.
So, what’s the difference between the current Help to Buy Equity Loan scheme and the new one?
One of the key differences is that the current scheme is available to anyone buying a new build property so could be ‘second movers’ – providing it is your only property as you cannot have an interest in any other property – whereas the new scheme will be for first time buyers only.
The other and perhaps even more important change, are the price caps being introduced for different regions.
The caps have been set at 1.5 times the average first time buyer purchase price in each region (as of Autumn 2018).
Under the current scheme, you can buy any new build property which is valued up-to £600,000.
So, what will the likely impact on the market be as the scheme eligibility is restricted to first time buyers only?
About 13% of first time buyers bought using the Help to Buy equity loan scheme in England in 2018. And of those using the current scheme some 80% are first time buyers.
The scheme has been a simple and affordable way to buy a new build home with just a 5% deposit. And although the choice of property will no longer be as generous under the new scheme, this low deposit facility will still be available.
However, the new restrictions mean there could be a fall of up to a third in the annual 50,000 plus buyers using the new scheme next year.
And pressure is building on lenders and the market to come up with other ways to fund high loan to value mortgages on new build properties, after Help to Buy finally closes in 2023.
Currently, outside the Help to Buy scheme, most lenders will only lend up to 85% loan to value on new build houses, and 80% LTV on new build flats.
In summary, if you aren’t a first-time buyer and you want to take advantage of the current scheme then you’ll need to act quickly; ultimately you’ll need to exchange contracts by the late summer 2020.
The construction of a new build home can take anywhere between four to eight months depending on the weather, construction supply delays and any requested customer design changes that are implemented along the way.
Of course, the Help to Buy Equity Loan isn’t the only government incentive to help first time buyers get on the property ladder.
There are other routes such as 95% mortgages which require only a 5% deposit – rates on these deals have reduced considerably in recent years.
There is also the shared ownership scheme which is known as ‘part buy, part rent’, this scheme allows you to buy a share of a property and pay rent on the rest.
Finally, you could opt for a guarantor mortgage. This is when a parent or close family member uses their own property or savings as security against your loan. This means lenders may accept a smaller deposit than usual and sometimes they won’t require any deposit at all.