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What the new Help to Buy scheme means for first-time buyers in the East of England

01 Dec What the new Help to Buy scheme means for first-time buyers in the East of England

PROSPECTIVE first-time buyers in the East of England will soon be able to apply for the government’s latest Help to Buy scheme – but it comes with a price cap.

The current Help to Buy: Equity Loan scheme, which was launched by the government in 2013, gives first-time buyers and homeowners an opportunity to buy a newly built property worth up to £600,000 with just a 5% deposit.

However, the scheme is becoming more restricted. Only first-time buyers will be able to apply for a loan, and regional price caps will also be introduced, which sit at £407,400 for homes in the East of England.

With those who are eligible able to apply for the scheme from 16 December 2020, Rachel Maxwell, senior associate and expert residential conveyancing solicitor at Nelsons, explains what the changes mean for prospective homeowners.

How does the Help to Buy scheme operate?

“In summary, under the current scheme, first-time buyers and existing homeowners can purchase a new build home with a deposit as little as 5% of the purchase price.

“They can borrow 20% of the purchase price – or 40% if you are buying a property in London – with a government ‘top-up’ loan. Buyers then need to arrange a mortgage on the remaining balance due of the property price.

“The loan from the government is interest-free for the first five years of the mortgage, plus a £1 monthly management fee. In the sixth year, interest is charged at a rate of 1.75%. After then, the fee rises by inflation based on the Retail Prices Index, plus 1% each year.

“Buyers can choose to pay off the loan at any time but will need to repay the equity loan in full when they sell their home, pay off their mortgage or come to the end of the equity loan term, which is usually 25 years.

“As the amount the buyer has borrowed is a percentage of the property value, the amount the buyer has to pay back is the same percentage of the value of the home at the time.

“The original scheme is not available to those purchasing a property without a repayment mortgage; people looking to buy a second home, even if they rent out the property after it has been purchased; and those who are buying a property in excess of £600,000.

“Since its launch, it has helped more than 270,000 households to buy a new-build home.”

What changes are being introduced?

“The scheme will be extended from April 2021 to the end of March 2023. However, there will be some changes.

“It will only be available to first-time buyers – not existing homeowners – plus a range of regional price caps will come into force in England, which may lower the maximum purchase cost of a property bought via the scheme.”

How does this affect the current scheme?

“With the current stamp duty holiday in place, there has been a surge in property transactions across the country.

“For buyers considering purchasing a new build home with the assistance of the current Help to Buy scheme, it’s vital they bear in mind that property developers must have physically completed the construction of the house by 28 February 2021.

“Buyers using the existing scheme must also have legally completed their property purchased by 31 March 2021.”

What are the price caps and how are they calculated?

“The regional price caps are set at 1.5 times the average first-time buyer price in each region of England. They are:

North East – £186,100
North West – £224,400
Yorkshire and The Humber – £228,100
East Midlands – £261,900
West Midlands – £255,600
East of England – £407,400
London – £600,000
South East – £437,600
South West – £349,000.

“The government has said these caps will keep the prices of new homes closer to the average regional first-time buyer property price – ensuring those in need of the most support will benefit from the scheme.”