What will replace Help to Buy?

Last updated: May 2024 | 3 min read

With the conclusion of the Help to Buy Equity Loan programme, many first-time homebuyers are left questioning what will take its place. Here we explore how the scheme functioned, the reasons behind its termination, and take a closer look at the alternatives that are now stepping in to fill the void.

Buying a house is an exciting process, especially if it is your first home.

Let's have a closer look at what Help to Buy scheme offered, why it ended and what options you have now for climbing on to the property ladder.

The end of Help to Buy

The UK government announced the phase-out of the Help to Buy scheme, a decision influenced by multiple factors. It ended on ended on 31st March 2023.

Initially, Help to Buy aimed to assist first time buyers and stimulate the new build homes sector. However, it faced criticism for inflating house prices and benefitting house builders more than the home buyers.

Market dynamics, including the rise in property values and changing economic circumstances, also played a role in this decision.

The scheme's impact on the property market has been extensively debated, leading to the search for more sustainable home ownership solutions.

With the closure of Help to Buy, you might feel a sense of uncertainty as a first-time buyer. This scheme was a known route onto the property ladder, offering an equity loan to help with your house purchase.

Help to Buy explained

The Help to Buy equity loan scheme has supported numerous first-time buyers. Under this scheme, you only needed a 5% deposit to buy a new-build home.

The government would lend up to 20% of the purchase price (40% in London), interest-free for the first five years.

You secured a traditional mortgage for the remaining amount. This scheme aimed to boost your borrowing power, enabling a larger mortgage with a smaller deposit.

Government schemes as replacements

Now, you need to weigh the pros and cons of the available options. We have a more detailed article on first-time buyer schemes.

Mortgage guarantee scheme

The Mortgage Guarantee Scheme enables first-time buyers and current homeowners to secure a mortgage with just a 5% deposit. Launched in April 2021, this scheme addresses the scarcity of high loan-to-value mortgages.

Here, the government guarantees a portion of the mortgage loan to a participating lender, providing an extra security layer. This assurance allows mortgage lenders to offer higher loan-to-value mortgages while managing their risk.

For you, it means more accessible mortgage options, even with a small deposit.

Shared Ownership

Shared Ownership presents a path to homeownership allowing you to purchase a share of a property – usually between 25% and 75% – and pay rent on the remaining share. This scheme is often associated with new build homes or existing properties through a housing association resale programme.

Your household income must be less than £80,000 (£90,000 in London) to be eligible.

Over time, you can increase your ownership stake, a process known as 'staircasing', until you own the property outright.

Learn more about the advantages and downsides of shared ownership.

First Homes Scheme

The First Homes scheme, aimed primarily at first-time buyers and key workers, offers homes at a discount of 30% compared to the market price.

The exact discount and eligibility criteria can vary based on the local council's guidelines. The discount is passed on to future sales, ensuring the property remains affordable for local communities.

Lifetime ISAs

Lifetime ISAs offer an attractive avenue for saving towards your first home. You can contribute up to £4,000 each tax year and receive a 25% bonus from the government on your savings.

The funds, including the bonus, can be used to buy your first home if the purchase price is £450,000 or less. Remember, the account must be open for at least 12 months before you can use the funds for a property purchase.

Rent to Buy

Rent to Buy schemes are designed to ease the transition from renting to buying. They allow you to rent a property at a reduced rate – typically 20% below the market rent.

This reduced rent lets you save for a deposit to eventually buy the home. The rental period usually lasts between 5 to 10 years, during which you may have the option to purchase the property or a part of it through Shared Ownership.

Right to Buy

Right to Buy is a scheme enabling council tenants to buy their council home at a discounted price. The discount depends on factors like the type of property, how long you've been a tenant, and the property's value.

If you're a council tenant, this scheme can be a straightforward route to home ownership, leveraging your tenure as a tenant to reduce the purchase price of your home.

Alternative financial options for first-time buyers

Exploring 95% mortgages and their availability

95% mortgages offer an attractive route into home ownership, particularly for those who might struggle to save a substantial deposit. These mortgages require only a 5% deposit, opening doors for many first-time buyers.

Lenders participating in this scheme tend to apply stringent affordability checks to ensure borrowers can sustain their mortgage repayments. The availability of these mortgages often fluctuates with market conditions and government backing.

Bank of Mum and Dad

The term 'Bank of Mum and Dad' refers to financial assistance from family members, usually a parent, to help secure a property. This help can take various forms, from providing a lump sum for a deposit to accepting joint responsibility for mortgage repayments.

Family members must have a clear agreement and possibly legal advice to manage this arrangement effectively, maintaining family relationships and financial stability.

Guarantor mortgages

Guarantor mortgages involve a family member or close associate who agrees to accept joint responsibility for the mortgage. If the borrower defaults, the guarantor becomes responsible for making mortgage payments.

This arrangement can enable first-time buyers to access larger loans or more favourable rates. Both parties should understand the risks and commitments involved, often requiring legal and financial advice.

Joint Borrower, Sole Proprietor mortgages

Joint Borrower, Sole Proprietor (JBSP) mortgages allow family members to help a first-time buyer without being co-owners of the property. This setup helps increase the borrowing potential as the lender considers the income of all parties.

However, only the named proprietor holds the title to the property. This type of mortgage can be advantageous for tax and inheritance purposes but requires all parties to pass affordability checks and agree on the terms.

100% mortgages

100% mortgages, offering loans without a deposit, are rare and carry higher risks for both the lender and borrower. Usually available only to borrowers with a guarantor, these mortgages often have higher interest rates compared to other products.

Before considering a 100% mortgage, buyers should review their financial situation and explore all available options to find the most suitable and sustainable path to homeownership.

Private sector alternatives to the Help to Buy scheme

Deposit Unlock

Deposit Unlock offers a novel pathway for you to secure a home with a lower deposit. This scheme, spearheaded by a consortium of housebuilders and insurers, specifically targets new build properties. It enables you to purchase a home with just a 5% deposit.

Uniquely, Deposit Unlock is available to both first-time buyers and previous homeowners, broadening its appeal. Its primary attraction lies in breaking the high deposit barrier, often a major hurdle in home ownership.

Proportunity loans

Proportunity loans blend technology with traditional lending to offer a fresh solution. These loans, catering specifically to first-time buyers and home movers, provide up to 15% of a property's value as an equity loan.

This approach, reliant on AI-driven property price forecasts, aims to support your purchase in areas with promising growth potential. It's an innovative approach, combining data analytics with financial support, to enable more informed and sustainable property investment.

Ahauz: partnering with investors for home purchases

Ahauz introduces an inventive approach where private investors contribute towards your property's deposit, effectively co-investing in your home. Unlike conventional loans, Ahauz facilitates a partnership between you and the investor.

This scheme particularly benefits you if you can afford mortgage repayments but struggle to accumulate a substantial deposit. In exchange for their investment, investors gain a proportionate share in your property's equity, sharing both risks and rewards.

Wayhome: shared home buying

Wayhome revolutionises the path to home ownership by offering a gradual buy-in model. In this setup, you start with purchasing a portion of your home while renting the remainder. Over time, you can buy more of the property until you own it entirely.

This programme suits you if you're looking for flexibility and a step-by-step approach to owning your home outright. It's a dynamic model, offering both the stability of home ownership and the flexibility of renting.

Eligibility and application process for new schemes

Most new schemes replacing Help to Buy have specific eligibility criteria. Generally, these criteria focus on first-time buyers, income levels, and the price of the property you're interested in.

For instance, the Shared Ownership scheme requires you to buy a share of your home (between 25% and 75%) and pay rent on the remaining share. You can buy more shares when you can afford to. Your household income must be less than £80,000 a year (£90,000 in London).

Each scheme, including the Mortgage Guarantee and First Homes, has its set of requirements. Applying usually involves contacting the scheme provider or a participating lender, who will need details about your income, savings, and the property you wish to purchase. It's always wise to get written confirmation of all the details before proceeding.

Repaying equity loans

The Help to Buy equity loan scheme requires you to start paying interest after the first five years, but only on the loan portion. The interest rate starts at 1.75% and rises annually by the Retail Price Index (RPI) plus 1%. You must repay the loan after 25 years or when you sell the house, whichever comes first.

The amount you pay back is based on the market value of your home at the time of repayment, not the amount you initially borrowed. This means if your home increases in value, so does the amount you owe. Plan ahead for these repayments as they can represent a significant financial commitment.

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