Help to Buy Scheme Ending 2023 – What Happens Next

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If you are a first-time buyer, you will know first-hand the struggles of getting onto the UK property ladder. Historically the government has introduced various schemes to help first time buyers buy their first home – most recently the Help to Buy scheme.

Unfortunately, the Help to Buy scheme is ending in 2023 and it is unclear what help will be available in the future for first time buyers.

That said, there are a number of schemes and incentives in place now in 2022 to help you buy your first property. Let’s look at the Help to Buy scheme and other benefits of buying a property in 2022.

What is the Help to Buy Scheme?

The current Help to Buy scheme is an equity loan scheme set up by the government alongside other schemes.

A key problem the government identified for first time buyers was saving enough money to put down as a deposit.

To assist buyers, the government extends equity loans to first time buyers up to 20% (40% in London) of the property value.

To qualify for the Help to Buy Equity Loan Scheme you must:

  • Be over 18
  • Be a first-time buyer and buying a new build property
  • Be able to afford a mortgage on the property
  • Put down a minimum of 5% on the property
  • Use the property as your primary residence
  • Buy a property from an approved scheme vendor

The equity loan is interest free for the first 5 years, in the sixth year an interest rate of 1.75% is added to the loan.

Paying off Your Help to Buy Equity Loan

Paying off the equity loan in the first 5 years is ideal. Paying off the loan by the sixth year is highly advisable – extending beyond that time and interest on the loan is extremely high.

This is because after the sixth year, interest is calculated at Consumer Price Index (CPI) + 2%. As of September, the annual CPI rate is 10.1% which means an equity loan can currently have an interest rate of over 12% if 6 years has elapsed.

With the economic situation making these loans extremely unfavourable for borrowers over a long term, it is clear, they are not fit for purpose. Even if the CPI were taken out of the equation, with a flat 2% increase each year on the loan you would be at an interest rate of close to 10% by year 10.

Alongside unfavourable interest rates, the equity loan also has a monthly fee of £1 for each month you hold the loan. Paying interest and fees on the loan do not repay the equity loan itself and you still need to pay off the loan.

Finally, when you pay off your Help to Buy Equity Loan partially or in full, you will need to arrange a valuation of your property – it is important to note the loan is calculated against the equity you hold in the property – you are not borrowing a fixed sum of money, instead you are borrowing a percentage of the value of your property.

When Does the Help to Buy Scheme End Officially?

The government has decided the Help to Buy Equity loan will end fully in 2023 with a fixed deadline of 31st October 2022 for any potential registration.

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Why is the Help to Buy Scheme Ending?

The Help to Buy Scheme is a mixed bag as far as helping first time buyers. For those who can afford to pay off the loan in the first 5 years, it is a fantastic scheme. For anyone who will need longer to pay the loan back it can be costly or even financially crippling.

What Schemes Will Replace Help to Buy?

There are currently a few schemes in place to help you save a deposit. For example, if you qualify for benefits like Tax Credits you can make use of the Help to Save scheme. This scheme allows you to deposit up to £2,400 over 4 years with a £1,200 bonus paid. Essentially a 50% interest rate.

While the scheme isn’t going to be enough to secure a deposit in full, being paid a 50% bonus on £2,400 is still an incredibly good option to help boost up your savings. The government hasn’t announced any future Help to Buy schemes and it might be the case they don’t offer a scheme at all going forward.

It has been announced that stamp duty changes will be put in place for first time buyers which will alleviate most or all the tax burden for most first-time buyers.

What Our Clients Have To Say

Other Options Available to First Time Buyers

When evaluating the Help to Buy Equity Loan scheme it is important to look at the wider mortgage and property market.

Historically, Help to Buy schemes have been generous and funded by taxpayers. First time buyers may have approached the Help to Buy Equity Loan in the same way, expecting taxpayers to foot the cost – however it is clear on further inspection that the scheme is designed to pay for itself with such punitive interest rate hikes after the 6-year mark.

Mortgage providers have taken tremendous steps to help first time buyers and most lenders now have a product or deal aimed at first time buyers – whether that be a product like a springboard mortgage or a 5% deposit.

Boon Brokers is a UK Whole of Market Mortgage, Insurance and Equity Release broker. Boon Brokers provides specific tailor-made advice for first time buyers. The deadline has passed for last registration on the Help to Buy Equity Loan – Boon Brokers can outline the best course of action for you as a first-time buyer.

Boon Brokers offers FREE, no obligation mortgage advice, contact us today and tell us your mortgage goals.

Gerard BoonB.A. (Hons), CeMAP, CeRER

Gerard is a co-founder and partner of Boon Brokers. Having studied many areas of financial services at the University of Leeds, and following completion of his CeMAP and CeRER qualifications, Gerard has acquired a vast knowledge of the mortgage, insurance and equity release industry.