Help to Buy equity loan scheme coming to an end - what's next?

After helping thousands of people onto the property ladder, the Government backed Help to Buy Equity Loan scheme is coming to an end in March 2023. The scheme first launched in April 2013 and allowed both first-time buyers as well as existing homeowners to buy new-build homes up until 31st March 2021. On 1st April 2021, the Government further extended the scheme to first-time buyers only, allowing them to purchase new build properties up to a value of £600,000 with only a 5% deposit and provided an equity loan of up to 20% of the property purchase price (40% in London) which is repaid when the home is sold or after 25 years.

The scheme ended for new first time buyer applicants on 31st October 2022 and any properties being purchased using the scheme must have been build-complete by 31st December 2022. If properties were not built by this date, buyers are able to reclaim any reservation fees paid to the developer if they do not wish to continue with the purchase of the property. Extensions were granted up until 31st January 2023 if the developer notified the government by 20th December 2022.

Any on-going transactions must legally complete and buyers are expected to have keys to their new homes by 6pm on 31st March 2023. If this deadline is not met, buyers will no longer be eligible to use the Help to Buy Equity Loan. If contracts have been exchanged, the developer must release the buyer from the contract and return the deposit if they no longer wish to continue with the purchase.

Between 1st April 2013 and 30th June 2022, 369,104 properties were purchased under the scheme. Despite its popularity, the Government has not announced any plans to extend or replace the Help to Buy Equity Loan scheme however, there are other alternatives available that can assist buyers to secure their first homes.

Shared Ownership

An alternative to the Help to Buy Equity Loan scheme is the Shared Ownership scheme. Shared ownership homes are offered by housing associations, local councils and other registered providers and give buyers whose household income does not exceed £80,000 per year (£90,000 in London) who do not already own a home. It provides those who are unable to afford full deposits and mortgage payments on the open market the option to purchase a percentage share in a property and pay rent on the remaining share. Buyers are then able to 'staircase' meaning that they can increase the share of the property over time and therefore pay less rent. For most shared ownership properties, buyers are usually able to staircase up to 100% unless staircasing restrictions apply.

The scheme is available on new build homes and existing shared ownership homes. There are also Older Persons Shared Ownership (OPSO) properties that are targeted for those aged 55 or over. Ownership is capped at 75% of the value of the property and once this is reached, no rent is payable on the remaining share.

To apply for the scheme, a buyer must complete an 'affordable Home Ownership application' form on a Help to Buy agent website and if eligible, register their interest to purchase the property by contacting the landlord. A mortgage advisor will assess the income and outgoings of the buyer and advise on the maximum share percentage the buyer can afford. A reservation fee can be paid to reserve the home for a fixed amount of time.

First Homes Scheme

The First Homes scheme launched in June 2021 and allows first-time buyers, key workers and those on lower incomes to purchase a new build home at a 30%-50% discount which are advertised by developers as part of the scheme. In order to be eligible, a first-time buyer must be 18 years or over, the household income must not be more than £80,000 per year (£90,000 in London) and are able to get a mortgage for half the price of the home. Homes under the scheme cannot cost more than £250,000 after the discount has been applied (£420,000 in London).

In order to apply, a buyer must contact the developer and complete an application which form will be referred to the local authority for approval.

The Lifetime ISA (Individual Savings Account)

First-time buyers can save up to £4,000 a year up to the age of 50 for a property which costs £450,000 or less using the Lifetime Individual Savings Account. An account can be opened by anyone between the age of 18 and 39 and the government will add a 25% bonus on the money saved meaning that a person can save up to a maximum of £5,000 a year. In order to use the money saved towards purchasing a home, the buyer must have obtained a mortgage, the property must be purchased at least 12 months after the first payment into the Lifetime ISA account and the purchaser must use a conveyancer or solicitor to act on their behalf.

How the end of the Help to Buy equity loan scheme impacts Registered Providers?

Where extensions have been granted by the government, registered providers must ensure that any properties which have yet not been completed, must have obtained an extension to be build complete by 31st January 2023 and must prepare for completions by the end of March on those properties which are being purchased by buyer's using the Help to Buy Equity Loan Scheme.

With the end of the scheme and with the rising cost of living in the UK, registered providers may see an increase in demand of shared ownership properties or other affordable homes. The government announced a new £11.5 billion Affordable Homes Programme 2021-26 (AHP) which aims to supply approximately 162,000 new build affordable homes. With house prices on the rise the Programme provides cheaper rental or sale properties offering more affordable routes to home ownership. Housing associations, local authorities, developers, community-led organisations, for-profit providers can all apply for funding. An increase may also be seen in homes being purchased using the LISA therefore, registered providers must be cautious of any extra procedures and requirements that may come with this.