How does Help to Buy work? Who is eligible for the scheme and when does it change?
Help to Buy has been a huge hit, not just with first-timers and other home buyers but with developers, too.
The Government’s low-cost deposit scheme has grown to be the dominant force driving London’s property market.
London Help to Buy, the capital’s version of the scheme, allows buyers to spend up to £600,000 on a new-build home in any London borough.
This must be their only property and they can’t rent it out. It must be advertised as Help to Buy by a Help to Buy-registered developer.
The buyer puts down a minimum deposit of five per cent, takes a loan from the Government of up to 40 per cent of the value of the property, and then uses a mortgage to pay for the remaining 55 per cent.
So, someone spending £400,000 would need a £20,000 deposit. Their Government loan would be for £160,000 and they would need a mortgage of £220,000.
This certainly makes it easier to scrape together a deposit and cuts the size of that tricky first mortgage.
The current Help to Buy scheme runs to March 2021, when a new one comes in, running until March 2023 and restricted to first-time buyers only.
March 2021: when the current Help to Buy scheme, not restricted to first-time buyers, ends (Alamy Stock Photo)
The slowdown in London’s property market has inspired a growing number of developers to start offering London Help to Buy at their sites, providing a great choice of homes.
For more information, visit the helptobuylondon.co.uk and helptobuy.org.uk websites.
What are the downsides to Help to Buy?
There are, of course, downsides to consider. On a global scale, since Help to Buy was launched nationally in 2013, it has been blamed for stoking demand for starter properties, pushing prices higher.
In September the parliamentary Public Accounts Committee said the scheme was being used by people who didn’t really need Government support, to allow them to buy more expensive homes.
Interest payments kick in on the loan after five years. In year six you pay 1.75 per cent interest on the loan and it climbs at a rate of one per cent plus inflation every year after.
You can pay off the loan without a penalty whenever you wish. However, once interest payments on the Government loan kick in there is a risk that Help to Buy owners might find themselves struggling to keep up with repayments — unless they’ve had a few decent pay rises in the interim.
In a rising market none of this would really matter.
London Help to Buy owners could either remortgage or sell, walking away with their share of any capital growth and striking out on their own with a good deposit behind them.
However, London’s market has been wavering for the past three years, and will likely continue to do so until Brexit is settled one way or another.
As an absolute worst case, if property prices don’t start to move upwards, buyers could end up stuck in a home they can’t sell for a profit and can’t afford to keep living in.
On the other hand, five years is a very long time in property, and though there has been a slowdown in recent times, while there are more buyers than property to buy in London, there is a healthy chance a home will stay a sound investment.