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Help to Buy will leave a ‘mixed legacy’ – analysis
As the Help to Buy scheme closes for new applications from today, brokers reflect on its legacy, noting that it helped many people onto the ladder but warning of issues around debt and rising house prices, a focus on new build only and the lack of a suitable replacement.
Help to Buy, which closes today, was launched in 2013 to help people buy new build properties. The government provides an equity loan of up to 20 per cent of the property value (up to 40 per cent in London), which is repayable when the property is sold.
Since the scheme was launched, 361,075 properties have been bought with an equity loan. The total value of properties sold under the scheme is £100.8bn and the total value of equity loans is £22.5bn.
According to government figures, around 82 per cent of users of Help to Buy were first-time buyers.
In 2021, the government changed the eligibility criteria to solely first-time buyers and introduced regional price caps.
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The ups and downs of Help to Buy
The Help to Buy scheme closes for new applicants from today and expires in March next year.
Scott Taylor-Barr, financial adviser at Carl Summers Financial Services, said that the scheme had been “excellent” in terms of helping people buy a property, but there were downsides.
“It has only helped people buy new build homes, which may not be right, or even available, for some people. It has certainly boosted house price growth, oddly helping some, whilst moving others further away from owning their own home at the same time,” he noted.
He added that it could “create a huge debt issue moving forward” as the extra deposit given is in the form of an equity loan and as house prices have risen by a record amount over the past two years, the sum borrowed has grown.
Imran Hussain, director at Harmony Financial Services, agreed that there would be many “caught short” once they realise they have to pay back a percentage of the house value now, rather than what they originally borrowed.
Taylor-Barr said that Help to Buy, in terms of the equity loan version, was the “very definition of a double-edged sword”.
HTB helped ‘many break free from the rent trap’
Ben Bailey, chief customer officer at Even, said that the scheme had helped over 360,000 people “break free from the shackles of the rent trap and begin to build property wealth”.
However, he said that there were downsides, such as the focus on new build, which often came with a premium.
Bailey continued: “Its removal caps a remarkably turbulent period for first-time buyers, with products being pulled left, right and centre, and rocketing rates severely hampering affordability. All at a time of rising house prices and falling real incomes.
“But rather than mourning the loss of Help to Buy, those looking to buy their first home should consider what options are available to them. The end of Help to Buy has seen innovation in the space, with several new options out there to help first-time buyers into their new home.
“Now more than ever, a good mortgage broker, who can advise on all the alternatives, is worth their weight in gold.”
Bailey said that it had seen enquiries grow by 57 per cent in October alone, and more buyers were looking for options to boost their budget.
“As Help to Buy disappears from view, it will be imperative that the industry bands together to pick up the slack and expand the options available to those looking to escape Generation Rent,” he said.
Housebuilders and government ‘biggest beneficiaries’ of HTB
Riz Malik, director at R3 Mortgages, said that one of the “biggest beneficiaries” of the scheme was housebuilders, adding that other than support measures during Covid, he was unaware of “any other sector that has received the same level of support”.
Hussain agreed that biggest winners from the scheme were the government and housebuilders.
He continued: “There will be some who are now caught out by the deadline, and while nothing will replace Help to Buy equity loans, there are some private companies looking and offering solutions.
“The positive now should be that new build properties are priced more accurately, not 20 per cent higher due to Help to Buy. The legacy Help to Buy will leave will be a mixed one. It has helped many get onto the housing ladder but many may not be able to ever afford to clear the equity loan without selling their home.”
Bob Singh, director of Chess Mortgages, said that Help to Buy ending coupled with lenders’ nervousness around 95 per cent schemes was a “big blow for first-time buyers and the developers who have been shored up by this scheme for many years”.
“Cold winds await both over the coming months,” he noted.
Singh said that government needed to introduce a replacement or extension if it wanted to “keep the property heart pumping”.
“The Autumn statement would be a good time to launch such a scheme and inject life into the market. Existing applications however still have till March 2023 to complete and many developers were busy at the weekend working hard to get the cases lodged before the scheme closes today.”
What can replace Help to Buy?
Mark Robinson, managing director at Albion Forest Mortgages, said that he had not seen a “great deal” of Help to Buy enquiries which indicated that people were aware it was ending.
He continued: “The government has done very little to replace the Help to Buy scheme, announcing the First Homes scheme during the pandemic, but then not really supporting it further. As the First Homes scheme isn’t widely available and doesn’t appear to be changing to be more widely available, it is not really a viable replacement.”
Robinson said that lenders had brought out the Deposit Unlock scheme, but it does not really offer much that wasn’t there already”.