Is the New Help to Buy Scheme Working?

The government launched a new Help to Buy Scheme in April 2021. This scheme, not too dissimilar to the last version, aims to help first-time buyers in England to step onto the property ladder and purchase their first home. The scheme offers equity loans on new-build homes, although the property prices are capped and are based on average house prices in the buyer’s region.

Image Credit

What is an equity loan?

The government’s equity loan, which is granted as part of the Help to Buy scheme, is expected to be repaid. Anyone entering the scheme should also take the time to consider how they will make this repayment – perhaps by re-mortgaging, saving throughout the loan period or selling the property. The options for repayment are explained online as many people target help to buy redemption options.

How is the Help to Buy scheme going so far?

Whilst the scheme looks good on paper, questions have arisen as to whether it is working as well as it should, as analysis seems to suggest that there is a lack of eligible properties available. The situation in Tyne and Wear clearly demonstrates the problem. At the point of analysis, only 9% of listings in the area were new-builds, and of those, only 14% were within the Help to Buy price cap. This translated into 51 properties being eligible for Help to Buy across the whole of Tyne and Wear, which has over a million residents. In comparison, Merseyside showed 13% of listings to be new-builds and 71% were eligible, giving 476 properties to choose from.

Image Credit

What are the drawbacks?

A lack of availability is not only making it difficult to acquire a property under the scheme, but the imbalance in supply and demand is causing a house price increase. As the equity loan to be repaid is not what was borrowed but instead a percentage of the value of the property at redemption time, those buyers who are reaching their target help to buy redemption may find themselves further away than they expected. Pros and cons of the scheme are discussed online: https://www.nerdwallet.com/uk/mortgages/pros-and-cons-of-help-to-buy-schemes/

The scheme comes to an end in March 2023. It will be interesting at that point to see how many have benefited from it and what the impact has been on the housing market as a result. The analysis carried out in these early stages may cause the government to reconsider the scheme or potentially adjust the rules to enable it to be further-reaching and of wider benefit. Restricting the scheme to new-builds, for example, affects areas where there isn’t a great deal of new building occurring.