The Help to Buy scheme was a government initiative in the UK designed to help first-time buyers and those looking to move up the property ladder to purchase homes with smaller deposits. The scheme primarily offered two main products: the Help to Buy Equity Loan and the Help to Buy ISA. However, as of 2023, the Help to Buy Equity Loan scheme has ended, though existing loans are still active.
Here’s a breakdown of the scheme and its impact on mortgages:
1. Help to Buy Equity Loan
- Overview: The Equity Loan was available to first-time buyers and home movers purchasing new-build properties. The government lent up to 20% of the property’s value (up to 40% in London), meaning buyers needed only a 5% cash deposit and a 75% mortgage to cover the rest.
- Repayment: The loan was interest-free for the first five years. After that, interest was charged at 1.75%, increasing annually by the Retail Price Index (RPI) plus 1%. The loan itself was repayable when the property was sold, or after 25 years.
- Eligibility: It was available for properties up to £600,000, and buyers could not own another property at the time of purchase.
2. Help to Buy ISA
- Overview: The Help to Buy ISA was a savings product that allowed first-time buyers to save towards their deposit. The government added a 25% bonus to the savings, up to a maximum of £3,000.
- Limits: The ISA could be opened with an initial deposit of up to £1,200, with up to £200 added each month. The bonus was only claimable when purchasing a property worth up to £250,000 (or £450,000 in London).
- Scheme Closure: The Help to Buy ISA scheme closed to new accounts in November 2019, though existing savers can continue to contribute until November 2029 and claim their bonus until November 2030.
3. Impact on Mortgages
- Affordability: The Help to Buy Equity Loan reduced the amount buyers needed to borrow from a mortgage lender, which generally made monthly payments more affordable. However, buyers had to account for the future repayment of the equity loan.
- Mortgage Options: Mortgage lenders offered specific products tailored to those using the Help to Buy scheme, often with competitive interest rates and terms designed to align with the scheme’s requirements.
- Post-Scheme Landscape: With the end of the Help to Buy Equity Loan in March 2023, first-time buyers and those looking for similar support must now turn to other government initiatives, such as the First Homes scheme or Shared Ownership, or explore traditional mortgage options with larger deposits.
4. Current Alternatives
- First Homes Scheme: Offers properties at a discount of at least 30% to first-time buyers and key workers. This discount is passed on to future buyers.
- Shared Ownership: Allows buyers to purchase a share of a property (between 25% and 75%) and pay rent on the remaining share. Over time, they can buy more shares (a process known as staircasing) until they own the entire property.
Conclusion
While the Help to Buy scheme was a significant boost for many first-time buyers, its closure means that new buyers must explore alternative options. These include other government schemes or larger deposits with standard mortgages. Existing Help to Buy Equity Loans remain active, and borrowers should plan for the eventual repayment, especially as the interest-free period ends.