Help to Buy 

What fifth anniversary of Help to Buy means for borrowers

This article is part of
Guide to Help to Buy

What fifth anniversary of Help to Buy means for borrowers

When the government launched the Help to Buy equity loan scheme in April 2013, it was mainly with the aim to give first-time buyers a leg-up.

It had become increasingly difficult – nigh on impossible – for many people to get onto the first rung of the property ladder largely as a consequence of soaring house prices, stagnant wages, and many people stuck in a cycle of renting, leaving them unable to save for a deposit.

The interest-free for five years equity loan was for up to 20 per cent of the value of a property outside London, or up to 40 per cent for those homes in London.

So far, the equity loan has done what it set out to do, according to the Ministry of Housing, Communities and Local Government, which reports that 2017 saw the highest number of first-time buyers in the UK since 2006.

According to the latest Help to Buy figures, published on 26 April 2018, since the launch of the scheme in April 2013 to the end of 2017, 158,883 properties were purchased with a Help to Buy equity loan.

In that period, the total value of the loans was £8.3bn, while the total value of properties bought under the scheme is £39.3bn.

First-time buyers continue to account for 81 per cent of purchases using the scheme.

How it works

When the government launched the Help to Buy loan it was only meant to be a three-year scheme.

But Craig Hall, new build manager at Legal & General Mortgage Club, forecasts the scheme will still be around "beyond 2021", although whether the Ministry of Housing makes any tweaks to it remains to be seen.

The government website helptobuy.gov.uk sets out exactly how the loan works: "With a Help to Buy: Equity Loan the government lends you up to 20 per cent of the cost of your newly built home, so you’ll only need a 5 per cent cash deposit and a 75 per cent mortgage to make up the rest.

"You won’t be charged loan fees on the 20 per cent loan for the first five years of owning your home."

Below is an example of how this would work for a house worth £200,000.

Source: helptobuy.gov.uk

The website confirms what would happen to that loan on sale of the house: "If the home in the example above sold for £210,000, you’d get £168,000 (80 per cent, from your mortgage and the cash deposit) and you’d pay back £42,000 on the loan (20 per cent). You’d need to pay off your mortgage with your share of the money."

So, why is the fifth anniversary of the equity loan scheme such a milestone?

As a spokesperson for the Ministry of Housing explains: "Under the Help to Buy equity scheme, buyers are required to make interest payments on the loan after five years and this will start from April 2018."

Those homebuyers who took out the Help to Buy loan back in April 2013 will have had to begin making repayments last month – the first under the scheme to do so.