What Are the Pros and Cons of the Help to Buy Scheme for First Time Buyers?

28 October 2021

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The Help to Buy: Equity Loan Scheme Will Run Until March 2023

The new Help to Buy scheme launched in April 2021 as a replacement to the former version which has supported 328,000 home purchases since 2013. The original scheme required buyers to have a 5% deposit of their own, topped up by an interest-free government loan worth 20% of the purchase price. The remaining 75% of the property was financed by a traditional mortgage lender. Our team of estate agents in Brentwood explain that the rules of the scheme have changed so that applicants may now only buy properties worth less than the average price in their region. Additionally, only first-time buyers can take advantage of the scheme.

If you’re interested in the Help to Buy scheme to get on the property ladder, what are the pros and cons of using the program?

Con: New-build house prices rising

One of the main criticisms of the Help to Buy Scheme since its inception, is that it has prompted builders to push up the cost of new-build properties, boosting their own profits rather than supporting typical first-time buyers to get a foot on the housing ladder. The Help To Buy equity loan is restricted only to new-build properties which are often more expensive than homes that have been previously owned. As the scheme now requires homes to be worth less than regional average house prices, this now makes it challenging for buyers to find a suitable property.

Pro: Interest-free equity loan

A major advantage of the scheme is that your equity loan is interest-free for the first five years after you complete on your purchase. As your equity loan is worth 20% of the price of your property, this is a substantially cheaper way to finance your purchase in comparison to getting a larger mortgage. Following the interest-free period, you can expect to pay an interest rate of 1.75% on your loan during the sixth year, after which the rate will rise in line with the consumer prices index rate of inflation, plus 2 percentage points.

Con: Negative equity

If you buy a property at the top of the market, then if house prices go down, there’s the potential for Help to Buy homeowners being left in negative equity.

Pro: Difficult to raise a deposit

Without the Help to Buy scheme, many first-time buyers would find it hard to raise the necessary deposit by themselves to get a foot on the housing ladder. Those who are renting whilst trying to save for a deposit and perhaps pay off student loans find that the increasing living costs make it unrealistic to consider buying unless they’re given a helping hand. The prevalence of first-time buyers also makes for a stronger housing market as they’re able to kickstart an otherwise stagnant property landscape.

The government plans to end the current Help To Buy Equity Loan Scheme for first time buyers on 31st March 2023, so if this incentive is attractive to you, then now is a great time to look into it. Get in touch with your local estate agents today to discuss appropriate properties in the area.

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