Help to Buy was a popular government-backed scheme aimed at helping people get onto the property ladder. It was launched in 2013 by the then Chancellor of the Exchequer, George Osborne, and ends officially in March 2023 although the final application deadline was 31st Oct 2022.
The Help to Buy scheme effectively enabled buyers to purchase a new-build property with just a 5% deposit by offering a government-backed loan of up to 20% of the property value which they could use when arranging a mortgage. Homebuyers would then have to take out a standard mortgage for the remaining 75% of the property value. In London, the maximum loan available was 40% of the property value.
There were concerns that the scheme was responsible for some house price inflation but it has generally been seen as a force for good and has helped many people onto the property ladder. Between April 2013 and 30 June 2022, almost 370,000 properties were bought by people using a help to buy equity loan.
Who was eligible?
In order to be eligible for the help to buy scheme, people needed to be:
– A first time buyer
– Taking out a repayment mortgage
– Buying a new build property which was part of the scheme
Help to Buy was not available for second homes or to buy properties that were going to be rented out.
What were the good points of the Help to Buy scheme?
The main advantage to the scheme was that it was able to help people onto the property ladder who could not otherwise have afforded it.
The loan was interest free for the first five years and then had an interest rate of 1.75% in the sixth year. In the years following that, the interest rate was tied to inflation. This means that it was a competitive loan and that help to buy repayment amounts were reasonably affordable.
Because the initial deposit percentage was larger with the initial loan factored-in, buyers could access cheaper mortgage rates for the remaining percentage.
Another advantage was that the loan could be paid back in stages, increasing the percentage owned via a process known as staircasing.
Need expert advice?
If you are looking for help in planning and making the repayments under this scheme, there are plenty of expert firms offering resources online, such as the example seen here: https://www.samconveyancing.co.uk/news/conveyancing/help-to-buy-loan-repayment-5182.
What were the downsides of the Help to Buy scheme?
Whilst there were obvious advantages to the scheme, there were also a number of issues. The main ones were that the loan value actually increased in line with the value of the property, the loan got more and more expensive as the interest rate was linked to inflation, the scheme was only available on certain new-build properties, only a limited number of lenders offered Help to Buy mortgages, and there was a danger of negative equity.