Industry experts have said the latest statistics released yesterday (November 11) by the Department for Levelling Up, Housing & Communities, have shown that the scheme’s popularity has dwindled following the stamp duty holiday.
The scheme closed to new applications on October 31 of this year, with legal completions needing to happen before March 31, 2023.
From April to June this year, 8,018 properties were bought with an equity loan from the scheme.
“The full picture will become clearer when Q3 figures are released, but it looks more like [the scheme] ended with a whimper rather than a bang,” James Turford, chief operating officer of Even said.
Help to Buy ISA usage was also down, according to the statistics released yesterday.
The government scheme, which sees an additional 25 per cent added to savings of first time buyers, is on track to have the lowest year of usage since 2017.
The scheme closed for new savers in 2019, but remains open for existing savers until 2029.
AJ Bell’s head of personal finance, Laura Suter said a further drop in usage of the ISA is likely with fears of a house price crash putting off first home buyers.
“The drop-off also can’t even be blamed on the recent mortgage market turmoil, which saw rates soar and many delay their house buying plans as a result, as this happened in September,” she added.
For the Help to Buy equity scheme, completions were down by the greatest amount in the West Midlands which saw a year-on-year drop of 43 per cent.
The scheme, introduced almost a decade ago, allowed the government to offer up to 20 per cent of a newly built house or flat’s value (40 per cent in Greater London) in the form of an equity loan, with the home buyer able to put down a minimum 5 per cent deposit.
It was updated in April 2021 with new regional price caps and was restricted to applications from first time buyers only.
From April 2013, when the scheme began, to the end of June 2022, a total of 369,104 properties were bought with an equity loan, with a total loan value of £23.1bn.
According to the DLUHC, as of June this year, the value of the properties sold under the scheme totalled £103.2bn.
Turford, whose firm specialises in interest-free equity loans to help first time buyers boost their deposits, said the changes introduced to the scheme last year impacted its popularity.
But he noted that this year’s tougher economic climate, with real incomes falling and interest rates rising, also contributed to the dwindling uptake of the scheme.
“Buoyed by the stamp duty holiday rush, the scheme saw a recent peak in 2021, and completions have been on the slide ever since,” he said.
“There are still options out there, with private sector innovation taking off to fill in the gap left by the scheme, and mortgage rates are showing signs of retreating somewhat,” Turford added.
House price fall?
Founder of mortgage broker, Rose Capital Partners, Richard Campo said many first time buyers will be wondering what will replace the government backed scheme, but noted that there is “little form” of a viable replacement.
Is this the moment that shared ownership becomes a bigger part of the market David Hollingworth, L&C Mortgages“They could hold tight and wait to see if house prices in 2023 fall, however I feel that the reality won’t live up to the expectation,” Campo said.
“If we do see a fall in house prices, I believe that this will only be a modest fall, particularly in London and the South East, which saw house prices shoot up post-Covid lockdowns.”
Campo’s outlook differed to Turford's when it came to where interest rates are heading.
“We’re likely to see interest rates continue to rise well into 2023, although they will probably top out at around 4.5 per cent, rather than close to 6 per cent, as feared a few weeks ago.
“As we adjust to living in a higher interest rate environment, lenders will potentially lend smaller loans in 2023, so even if house prices fall, loans will be smaller plus they’ll be charged at a higher interest rate,” he explained.
In Campo’s view this means first time buyers will be worse off the longer they hold off on a purchase.
“My suggestion would be that, if a first time buyer has a property in mind and the funds in place, the sooner they make their move the better,” he said.
What will plug that gap?
Others in the industry agreed with Turford that although the Help to Buy scheme is over, first time buyers still have options of support.
L&C Mortgages associate director of communications, David Hollingworth said: “Developers have started looking at Deposit Unlock, which is the most obvious solution and is picking up traction from lenders.”
The indemnity scheme was developed by the Home Builders Federation and its members. It is designed to help borrowers secure a new-build home up to a value of £330,000 with a deposit of just 5 per cent.
The government is also reportedly mulling whether to reintroduce its 95 per cent mortgage guarantee scheme, which was launched during the pandemic to spur lenders back to the smaller deposit market.
It allows buyers in England to secure a mortgage with a 5 per cent deposit. The Treasury then guarantees a portion of the loans on homes worth up to £600,000.
Brokers have said an extension to the mortgage guarantee scheme is “neither here nor there”, having previously branded the scheme a “damp squib” on arrival. In the first three months of the scheme, just 812 mortgages were completed through it.
Hollingworth also highlighted the government’s First Homes Scheme. It promises a 30 per cent discount for first-time buyers on new-build properties with a price cap of £250,000 across England and £420,000 in London.
In pricier areas, local planning authorities are able to require a minimum discount of up to 50 per cent compared to the market price. The discount is then passed on with the sale of the property to future first-time buyers.
But Hollingworth said “if you look at the numbers it’s a bit limited”. The scheme has promised to help first-time buyers acquire 1,500 new-build properties between 2021 and 2023.
Meanwhile, the government is targeting the creation of 300,000 homes a year - a target reiterated by recently re-appointed Secretary of State for Levelling Up, Housing and Communities, Michael Gove.
Some brokers reckon shared ownership is already enjoying increased interest in the shadow of Help to Buy.
“Is this the moment that shared ownership becomes a bigger part of the market?” said Hollingworth.
It allows borrowers to buy a share between 10 and 75 per cent of a home’s full market volume, while paying rent to the landlord for the share they own.
“It’s the security and tenure it gives people,” he added. “Private tenants will be wondering about this with their rents going up. Shared ownership does give you a foothold, even if you don’t get full ownership it’s a more secure tenure than renting.”
Borrowers ‘in a pickle’ over exiting HTB loans
For those who took out a Help to Buy equity loan, they may now be wondering how to exit it.
The government does not charge interest for the first five years of the scheme. In year six, borrowers start to pay monthly interest of 1.75 per cent.
Hollingworth said while this might look like a low charge on the equity loan against the backdrop of 5 and 6 per cent rates in the mainstream market, it is not necessarily low if the borrower took out a sizable equity loan.
Outside of London, this equity loan is 20 per cent of the mortgage, with the remaining 80 per cent borrowed sitting on a mainstream mortgage. This means the borrower repays the mainstream mortgage interest rate in addition to the monthly 1.75 per cent.
Mansfield-based broker Lewis Shaw said one of his clients needed to remortgage to clear his Help to Buy equity loan.
“They can't afford the new loan payments, and that's only on the 20 per cent equity loan. Anyone on the scheme in London with a 40 per cent loan could be in a real pickle,” said Shaw.
“They either need to borrow huge extra amounts or pay the interest on the Help to Buy element.”
ruby.hichliffe@ft.com and jane.matthews@ft.com
