The end of an era for Help to Buy: what does this mean for first time buyers?
The Help to Buy equity loan scheme introduced in 2013 has enabled people to buy new build homes with only a small deposit (as little as 5%) with up to 20% (or 40% in London) of the property’s sale price backed by a Government equity loan.
The scheme is due to become more restricted next year and will stop all together in 2023 (unless the Government decides to extend the timeframe).
More than 225,000 buyers have taken advantage of the Help to Buy equity loan scheme and its popularity has soared over time. In the last quarter of 2018, it accounted for over 60% of all new home purchases. To date, it has been available for existing homeowners as well as first-time buyers but, from 2021, it will only be available for first-time buyers.
Due to the impact of Covid-19, the Government has decided to make changes to the current impending contractual deadlines to end the current scheme. The deadline for home builders to complete Help to Buy homes will now move from 31 December 2020 to 28 February 2021. The legal completion date for most homebuyers remains 31 March 2021. Some homebuyers will have more time to complete their purchase and move into their new homes if they reserved it by 30 June 2020.
What does this mean?
- You can still apply for the current scheme before it ends in March 2021, so long as the developer can complete the property so that it is capable of occupation by 28 February 2021 and you must still be capable of ‘legally completing’ by 31 March 2021;
- If you reserved your home by 30 June 2020, you may be able to complete and have the keys to move into your home by 31 May 2021 if you qualify for an extended legal completion. This support is only for homebuyers experiencing severe delays due to Covid-19. Your developer must be able to finish your home, so it is ready to move into by 30 April 2021. It is imperative that you check with the developer and your legal advisor that you can meet these dates to qualify for equity loan funds, otherwise you may not be able to proceed and your contract will be rescinded.
- If you reserved your home on 1 July 2020 or later, you must legally complete your purchase and have the keys to move into your home by 31 March 2021. Your home builder must have finished your home so it’s ready to move into by 28 February 2021. If you don’t complete by these dates, you will not be able to get the equity loan funds and again this could impact the transaction proceeding.
Again, it is essential to ensure you are protected contractually and you are clear that the developer can achieve these dates for legal completion. If the developer cannot meet these deadlines, then they must unconditionally release you from the contract and refund your deposit and reservation fee.
It is thought that the 2021 market will lose 19% of its sales as non first-time buyers are withdrawn from the scheme and there is further fear that, when it is axed in 2023, it will hit developers and impact the Government’s house building targets.
With the popular Help to Buy scheme coming to an end, there is a great need for the introduction of a similar Government initiative with a similar equity share backed scheme. The Government has recently unveiled details of a new ‘First Homes Scheme’ to provide discounted homes for first-time buyers and key workers. It promises a 30% discount on certain new build homes, which would then be passed on to future buyers. The scheme is due to be piloted next year.