The last 12 months have seen the housing market adapt to try and navigate the effects of Covid19; but amongst discussions surrounding the Stamp Duty holiday, reduced mortgage packages and rates available, for many the governments ‘Help to Buy’ scheme has been a welcome option as a route onto the housing ladder; but, from 1st April 2021, the scheme has changed. Regional price caps can now apply and only first-time buyers will be eligible.
The changes to the scheme, which ends completely in 2023, mean that first-time buyers must buy a new-build house which is worth less than the average house price in their region. For example, as the scheme shifted this equated to a property for less than £186,100 in the North East and a cap of £407,400 in the East of England.
How does it work?
Through the Help to Buy scheme first-time buyers can buy a new-build property with just 5% deposit, borrowing 20% of the purchase price (40% in London) interest free for five years through the Governments ‘Equity Loan’ scheme.
The rest of the house purchase is funded on a repayment basis with a mortgage.
After five years interest is charged on the equity loan, increasing by the Consumer Price Index (CPI) plus 2% (1% if you took the equity loan before December 2019)
If the house is sold the same percentage of the initial equity loan must be repaid. For example, if the initial loan was for 25% of the property then 25% of the value at the time of the sale must be repaid. For example you might sell it for £200,000, but if a valuer thinks it’s worth £220,000, you pay back 25% of the £220,000. This aims to prevent people from selling their home for a lower price to avoid paying back more.
Original purchase price = £200,000 (Bought with 5% deposit of £10,000 and 20% equity loan contribution of £40,000)
Future sale price (or valuation price if higher) = £250,000
Increase in value = 25%
Equity loan repayment (£40,000 original borrowing + 25% ‘profit’) = £50,000
Evolve Financial Services are a whole of market provider specialising in newbuild mortgages. We have helped thousands of people to buy their property with the right mortgage product. Speak to a member of our team today and let us help you to get onto the property ladder.