The Help to Buy (H2B) scheme in its current form had been due to end in April 2023, but the government - rather quietly – recently made a surprise announcement that the scheme is now ending earlier, with the application deadline brought forward to October 2022 and the scheme itself wrapping up entirely by March 2023. But it has been incredibly popular both with buyers and homebuilders, so what will this mean for first time buyers and the supply of housing more widely?
In our previous H2B article in 2021 we showed that 300,000 people have used the scheme since its inception, while further studies have shown that up to 56% of people who have used the scheme say that they would not have been able to purchase their newly built property without its assistance (Whitehead and Williams, 2018). We also showed that new build starts increased by 25% in the year following the launch and continued to increase steadily over the following years, before a small downward shift in 2019.
The end of
with the applications deadline now just months away (October 2022), what could be the implications and what alternatives exist for first time buyers?
Help to Buy
Overall, home builders, developers and first time buyers have clearly benefitted from Help to Buy, which means that it has achieved the two objectives the government set out:
"to turn the desire for home ownership into demand for new homes"
"to encourage developers to build more new homes"
So why end the scheme now?
2023 will mark the 10 year anniversary since H2B was announced, and that could have felt a natural time to finally wind it down
The housing market had been looking relatively balanced in the few years prior to the announcement: house price inflation was at stable and sustainable levels, and owner occupation rates were rising
New build start rates had actually begun to slow which might have suggested to the government that H2B wasn’t performing one of its main objectives any more anyway
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However, the scheme is still being used by many first time buyers and taking it away will almost certainly leave a hole in support of transaction levels. If demand for new build homes softens, then in theory fewer homes will be built. While we should not feel too badly for developers and house builders (after all they have all benefitted from the scheme and since 2014 share prices for all the main housebuilders have increased generously), fewer homes mean less supply, and further upward pressure on house prices and affordability, largely at the expense of first-time buyers.
With Help to Buy set to end, will there be any alternatives in place to help first time buyers? Here we go through a short list of alternatives: -
First Homes
1
Shared Ownership
2
Lifetime ISA
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House Builders
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First Homes
This scheme (launched June 2021, in England only) is available to first time buyers, and primarily key workers who live and work in the local area, in new build developments. Homes are offered at a discounted rate of at least 30% of market value to qualifying individuals, on homes valued at no more than £250,000 (£420,000 in Greater London). The discount must be passed on if the house is resold at a later date, and there is still the need for a normal deposit and mortgage to be in place.
"The government has an aim to deliver at least 10,000 homes per annum with this type of offer in place but just 1,500 homes are set to be rolled out over the first two years. The scheme is still too new to know what the take-up and delivery rate will be."
Pros
Cons
Helps those who are first time buyers and finding it hard to get on the property ladder.Helps those who are first time buyers and finding it hard to get on the property ladder.
Local people often feel priced out of their own neighbourhoods and areas where they live and grew up. This aims to offset that by allowing locals to afford homes in their own areas.
A lot of research for the individual to find qualifying properties. There is no one portal with all properties listed.
Only available to those performing ‘key worker’ roles which can be subjectively determined by the local authority.
The eligibility criteria is confusing and can be changed by each local authority. The price cap and minimum discount can also be altered by the local authority.
If the new owner of the property wishes to resell, they need to do so with the discount to another First Homes qualifying individual.
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Shared Ownership
Shared ownership is open to households who can’t quite afford a mortgage or a home at current rates. It is often referred to as ‘part buy / part rent’ as households buy a share of a home, as they have a mortgage on the share that they have purchased, and a below-market-value rent on the remainder. This helps buyers who are generally unable to pull together a large deposit, but want to get out of the rental market. On shared ownership homes there is the ability to allow the buyer to increase their share of the property over time, to eventually own 100% of it.
"There are approximately 202,000 households living in shared ownership homes in England, and many have found it a helpful way to get on the property ladder."
Pros
Cons
A smaller required deposit helps first time buyers and who are finding it hard to get onto the property ladder.
They are leasehold properties so there may be a ground rent fee to pay, and if there is a short lease, they are sometimes very difficult to sell on.
You are still effectively a tenant which means you have a landlord; you can still be evicted and there are restrictions on what alterations you can make to the property.
Selling them on can be difficult as they must be sold on as shared ownership. If there is a short lease length left this can be even more difficult.
You have to pay a service charge to cover the communal parts of the building or outside areas.
Allows households to gain equity in a property and move out of the rental market.
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Staircasing allows shared owners to gradually build the percentage share that they own, up to 100% ownership.
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Stamp duty exemption does not always apply to shared ownership schemes even if you are a
first-time buyer.
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Lifetime ISA
A Lifetime ISA (LISA) is one way of helping people to gather money together for a deposit on a new home. You can open a LISA if you are between the ages of 18 and 39, and you can pay in as much as you like up to a maximum of £4,000 per year. The government then adds a 25% bonus (to a maximum of £32,000) on top of all savings which can be used for a deposit for your first home. The property can only have a maximum value of £450,000, and if you withdraw the money for anything other than your first home you will have to pay a penalty charge of 25% on the amount you withdraw.
"The Lifetime ISA is particularly good as it can be used in conjunction with schemes like shared ownership or the
First Homes scheme."
Pros
Cons
The government tops up your savings with an extra 25% towards a deposit for your first home.
There are age criteria in place so you must open the LISA before you turn 40 and use it before you turn 50.
You can only pay in a maximum of £4,000 per annum and the government will only ever pay the 25% ‘reward’ up to a maximum of £32,000.
A 25% penalty is incurred if you withdraw your money for any other reason than to use it as a deposit or for retirement.
There is a price cap of £450,000 on the home you wish to purchase, using the LISA.
If there are two or more people purchasing the home, you can combine your LISA to buy it together.
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If you don’t want to use it for a first home you can still hold on to the LISA and access it, tax free, when you reach the age of 60.
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House builder or developer incentives and ‘Deposit Unlock’
By this we mean that builders will frequently instate their own individual schemes to entice buyers to their developments. They may offer to pay the stamp duty or other such loan schemes or discounts.
Deposit Unlock is a new scheme which launched in the summer of 2021. This is similar to Help to Buy as it is aimed at first time buyers and home movers looking to purchase a new build home with just a 5% deposit and 95% mortgage. Unlike Help to Buy however, it is not backed by the government but by participating housebuilders themselves, together with participating lenders. The housebuilder pays to insure the mortgage instead of the government.
"Home movers can also apply for this incentive, and it is not limited to just first-time buyers."
Pros
Cons
Discounts or incentives could include: -
- Solicitors fees paid
- Deposit paid on exchange
- Stamp duty paid
- Furnishing packages
- Cash backs
- Discount sales
- Part exchange
Deposit Unlock:-
Only certain home builders (17), and very few lenders (two) are currently signed up for the scheme.
The lender sets the Deposit Unlock criteria so this can sometimes be subjective, and you are not guaranteed to get the loan.
There is an inherent risk for anyone securing a 95% mortgage, including the potential for negative equity, as happened to many following the financial crisis in 2008 and the associated house price drop.
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As with Help to Buy, Deposit Unlock allows individuals to get onto the property ladder when they only have a small deposit / high loan to value.
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Depending on the lender, the property could be up to £750,000 in value (Nationwide).
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There is no further deposit or interest to pay on any remaining deposit (as there is with H2B).
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BACK TO TOP
Conclusion
There are some useful alternatives once Help to Buy comes to an end. But many of these will only be open to qualifying individuals and households (although H2B too had its own eligibility criteria). With H2B there was a straightforward incentive for builders to increase the supply of new homes, with demand increasing to take part in the scheme. However, for many of these schemes it is difficult to see how an increase in the demand for them will ultimately lead to an increase in supply.
The Deposit Unlock scheme may drive some level of increased supply, but it is strictly voluntary and not all housebuilders will be able to afford to take part.The First Homes arrangement could be promising, but the government has been slow to roll this out (just 1,500 properties in the first two years) and the criteria is very subjective.
Once Help to Buy comes to an end, some of the incentivisation to increase supply will be stripped away. We therefore expect a small but identifiable decline in the rate of new build properties coming to the market, at least in the short term. Builders are likely to step back and take stock of how their sales rates and transaction levels transpire over the 12-18 months following the end of H2B.
Whether you are a national housebuilder or a first time buyer, we are here to help, whatever your property requirements.
Click on the plus sign to see the short list of alternatives
Get in touch
Email me
020 7529 1538
Head of Residential Research
Leslie Schroeder
