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The Budget – Help to Buy scheme changes

The government’s controversial Help to Buy scheme has been extended for an extra two years to 2023, but will be limited to first-time buyers and have stricter price caps

The Help to Buy scheme offers buyers of newly-built homes an equity loan up to 20 per cent of the property’s value, so they only need a 5 per cent cash deposit and a 75 per cent mortgage on the rest. 

More than £8bn of taxpayers’ cash has been pumped into providing the equity loans which has helped purchase 169,000 homes since 2013. The aim was to make it easier for people with small deposits to buy their first home and for existing homeowners to move.

But the scheme, which was due to end in 2021, has proved controversial with critics slamming it as a subsidy for house builders who have been accused of using it to hike property prices.

In Chancellor Philip Hammond’s budget, there are two key changes: loans will only be available for first-time buyers rather than all movers and prices will be capped in each region.

To date some 19 per cent of buyers who have bought property through the initiative have been home movers rather than first-time buyers. Government said the changes were aimed at targeting the equity loans at those who needed help to get a foot on the property ladder.

Under the scheme, the government lends buyers up to 20 per cent of the property’s value (40 per cent in London). So, a buyer will only need to put down a  five per cent deposit and get a mortgage to cover  the remaining 75 per cent. The equity loans are interest free for the first five years. After the first five-year period, interest is payable and the rate increases annually.

The revamped scheme will cap prices at 1.5 times the current forecast average first-time buyer price in each region.  In London, the existing price cap of £600,000 will be unchanged but will reduce to £437,600 in the South-East and £349,000 in the South-West.

Help to buy
Help to buy

Meanwhile in the East of England it will be set to £407,400, in the West of Midlands £255,600, in the East Midlands £261,900, in Yorkshire and Humber £228,100 and in the North-East £186,100.

James Clarke, director of Lang Town and Country estate agents in Plymouth, warmly welcomed the certainty that extending the scheme would bring but said it was a shame only first-time buyers will be eligible.

He said: “It’s fantastic the scheme has been extended because it really does support the new housing market in a big way. A large proportion of our sales are through Help to Buy – up to 70 per cent of buyers on some sites.

“It will give developers confidence that if they buy a site, the Help to Buy scheme will still be in place when it comes to marketing and selling the new homes as buying land and getting planning permission takes a long time.”

Mr Clarke said the scheme was popular with young professionals who knew in advance what their salary band was likely to be in five years when the interest free period ended.

But he added: “It’s a shame government has changed the scheme for home movers because we found a lot used Help to Buy.”

Other changes in the budget include a £500m injection for the Housing Infrastructure Fund, to help councils develop roads and utilities to support new housing schemes, taking the total to £5.5bn.

Ministers also confirmed plans to drop a cap on how much councils can borrow to fund housebuilding.