How the 'Help to Buy' scheme is helping first time buyers
Getting on the property ladder is harder than ever. Many young people are stuck in a loop of trying to pay rent and save a deposit, all while house prices continue to rise. Figures from the Office of National Statistics show that the average house price as of March 2021 is £256,000, which is a whopping 20% increase in just one year.
This is why the UK government has introduced an updated Help to Buy scheme, to give first-time buyers a much needed helping hand to get on the first rung of the property ladder. Here, we take a look at the Help to Buy scheme and how it's helping people turn their homebuying dream into a reality.
What is the Help to Buy scheme?
Originally launched in 2013, the Help to Buy scheme is essentially an equity loan that enables you to purchase a new-build home with a lower deposit. Buyers can put down a 5% deposit, get a 20% equity loan from the government and then get a mortgage for the remaining 75%. This loan is interest-free for the first five years. Only having to save up a 5% deposit makes it far more achievable for first-time buyers to purchase a home.
Are there price caps on Help to Buy?
Previously, the Help to Buy scheme could be used on eligible properties up to the value of £600,000. The Help to Buy scheme has recently undergone some changes, and regional price caps have been introduced. These start from £186,100 and go up to £600,000.
What's changed with the Help to Buy scheme in 2021?
When the Help to Buy scheme was originally set up, it was open to both first time buyers and those moving home who were looking to purchase a new build. While 82% of those using the scheme were first time buyers, it meant that others were taking advantage of a scheme that was not necessarily made for them.
As of 1st April 2021, the scheme is now exclusively available to first-time buyers. The government has also introduced regional price caps, which have been set at 1.5 times higher than the average first-time buyer property in the area. These caps are as follows:
- North East: £186,100
- North West: £224,400
- Yorkshire & The Humber: £228,100
- West Midlands: £255,600
- East Midlands: £261,900
- South West: £349,000
- East of England: £407,400
- South East: £437,600
- London: £600,000
Can I apply for the Help to Buy scheme?
Before applying for the Help to Buy scheme, first-time buyers must make sure that they have:
1. At least 5% of the property value saved as a deposit
2. A fee of up to £500 to reserve the property
3. Enough to cover all additional costs such as legal fees, mortgage fees, etc.
If you have all of the above, it's time to apply for the Help to Buy scheme.
How to apply for the Help to Buy scheme
Firstly, you'll need to find eligible properties. Once you've searched online, viewed show homes and found the right one for you, you'll need to pay a fee of up to £500 to reserve it. This may be partially refunded if you're not approved for the Help to Buy equity loan.
Next up, you'll need to complete a Property Information Form. This isn't a mortgage application but it is just to make sure that you can be accepted for an equity loan. The form just needs your personal information, income, etc. and one of the Help to Buy agents will evaluate your application.
If your application is accepted, you can then go ahead and proceed with the mortgage application and house sale as normal. Your Help to Buy agent will be on hand along the way to assist with anything related to the process.
I own some land - should I get planning permission and sell using help to buy?
Only registered homeowners can be approved for the scheme, plus gaining planning permission is a lot of hassle in itself. This is why it's often easier, simpler and most effective to sell your land to a developer.
For those struggling to save for a deposit alongside paying rent and still trying to enjoy life, the Help to Buy scheme is a huge help. It is worth remembering that the equity loan from the government will need to be paid back on top of your mortgage, but as long as you factor this into your financial planning, it can make your dreams of being a homeowner come true much quicker.