First-time buyers rejoice: we list the major changes between the two schemes that go your way
One of the most popular schemes for homebuying is the Government’s Help to Buy equity loan. Under the scheme, the Government lends you 20% of the property price (40% in London) to boost your deposit, so you only need a 5% cash deposit and a smaller mortgage. This scheme is becoming increasingly important for first-time buyers, as banks have withdrawn their low-deposit mortgages due to the fallout of COVID-19.
The first run of the scheme, which ran from 2013 to now, has now ended, with the last reservations processed on 15 December. It’s now been replaced by Help to Buy 2 scheme, which runs from 2021 to 2023, and there are reasons for first-time buyers to rejoice.
Here are the major changes between the two schemes.
First-time buyers only
Unlike Help to Buy 1, The Help to Buy 2 scheme is restricted to only first-time buyers. According to the latest statistics, about one in five people who used to Help to Buy 1 scheme were non-first time buyers. These people are likely to have considerably deeper wallets than first-time buyers, and so not having to compete against them for the same limited new-build properties is a welcome change.
Reduced price caps outside London
Previously, a limit of £600,000 applied to new-build properties across all regions. Under Help to Buy 2, this only applies to London, with varying decreases across the other regions.
Why is this a good thing? The Help to Buy scheme has helped developers put their prices up and massively increase their profits (culminating in the famous £85m CEO bonus). Putting a lid on prices outside London helps keep developer pricing in check.
We put together the data across different districts in the interactive map here, and added existing price information to identify areas where the caps have more bite.
Zero ground rent
This is a major change that has snuck under the radar but could save homebuyers £100s a year. Under the new Help to Buy 2 scheme, developers are not allowed to charge any ground rent at all.
Ground rent is a rent payment paid by leaseholders (typically flat owners) to the freeholder every year. There are no services provided for this rent, it is just for the right to occupy the space.
Previously, new build flats would have annual ground rents of around 0.1% of the property price (so £500 for a £500,000 property), which increased every few years. Developers saw this as a new source of profit and this resulted in the ground rents scandal in 2017, where homeowners were trapped in homes where ground rents increased so quickly and substantially that their properties were essentially worthless.
No chance of this happening under the new Help to Buy 2 scheme. Ground rents must be zero otherwise the developer will not be able to sell their homes under the scheme.
District 34 is a data science company with the mission of bringing the lifelong security of homeownership to Generation Rent, particularly in London. Get free resources and cutting-edge research by signing up to our newsletter at www.district34.com.