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Help to Buy extension: What first-time buyers need to do now

Help to Buy extension: What first-time buyers need to do now

The Help to Buy scheme was first introduced in 2013 and, since then, it’s been used by hundreds of thousands of buyers.

Help to Buy has evolved over the years and is set to change again in 2021, so we’ll outline everything you need to know as a first-time buyer right here…

 

How does the Help to Buy scheme work?

The Help to Buy scheme was originally made up of several strands, including Help to Buy Equity Loans, Shared Ownership and Help to Buy ISAs.

Help to Buy Equity Loans are the most common strand of Help to Buy and see the government loan up to 20% of a new-build property’s purchase price to a buyer, who puts in a 5% deposit of their own.

In London, equity loans of up to 40% are available through Help to Buy.

 

The other main facts around the Help to Buy Equity Loans are:

  • The loan is interest free for the first five years
  • The purchase price of a Help to Buy property can be no more than £600,000
  • The equity loan must be repaid in full after 25 years, or earlier if you sell your property
  • The value of the equity loan goes up and down with the value of your property, so if you buy a home for £200,000 with a 20% equity loan, that loan would be worth £40,000. If you later sell your home for £300,000, the value of the loan is 20% of the new price, in this case £60,000
  • You can repay your equity loan at any time, but the minimum amount you can repay at any one time is 10% of the property’s value
  • Interest from year six is charged at 1.75% of the loan and rises by the Retail Price Index (RPI) plus 1% every year thereafter

 

When does the Help to Buy ISA end?

Help to Buy ISAs closed to new applications in November 2019.

Although existing Help to Buy ISA account holders can continue saving, they only have until November 2029, before all accounts will be closed to more savings.

Help to Buy ISAs were put in place to help buyers save a deposit for a home, with the government topping up the savings by 25% up to a maximum of £3,000.

So, in order to receive the maximum government bonus, the ISA would need to have at least £12,000 saved in it.

The government’s minimum bonus is £400, meaning the ISA would need at least £1,600 saved in it.

 

When does Help to Buy end?

Help to Buy as a whole is due to end in March 2023, although the government hasn’t ruled out an extension of the scheme.

The scheme is also changing in 2021, with regional price caps on properties available to buy coming into force in place of the current £600,000 purchase price limit.

Also, Help to Buy Equity Loans in England will, from April 2021, only be available to first-time buyers.

 

Is Help to Buy only for new builds?

Help to Buy is only available for buyers buying new-build properties through developers registered with the Help to Buy scheme.

Those buying existing homes cannot use Help to Buy to do so.

 

Is Help to Buy available for second-time buyers?

The current Help to Buy Equity Loan scheme is open to all buyers but will be restricted to first-time buyers only from April 2021.

In order to qualify for the current scheme, buyers must be able to complete their purchase before March 31, 2021, with building work completed before February 28, 2021.

However, those who reserved a property before June 30, 2020 and who have experienced delays due to the coronavirus pandemic may be granted an extension to complete beyond March 31, 2021.

 

Who is eligible for the Help to Buy scheme?

Under the current Help to Buy scheme, all buyers are eligible as long as:

  • The value of the property being purchased doesn’t exceed £600,000
  • They have at least a 5% deposit and can arrange a mortgage for the remaining amount after the equity loan
  • The property isn’t being purchased as a second home
  • The property isn’t rented out after it’s been purchased

 

When the new Help to Buy scheme starts in April 2021, only first-time buyers will be eligible, while regional price caps will replace the current £600,000 limit.

  

Regional price caps for Help to Buy 2021-2023

North East: £186,100

North West: £224,400

Yorkshire & The Humber: £228,100

East Midlands: £261,900

West Midlands: £255,600

 

Further reading…

With the coronavirus pandemic still affecting the UK economy, you might be wondering whether now is the right time to buy a property.

We’ve rounded up all the evidence and taken a look at the current market to help you decide.