Good news for builders the Help to Buy Equity Loan is here to stay – at least for the short term
In the light of much speculation in the media and elsewhere, the Department for Communities and Local Government announced earlier this month that the rumours weren’t true. No, the DCLG said, we’re not scrapping the Help to Buy equity loan scheme. It will be here to stay for at least the next four years.
So it’s worth a quick recap: what does this scheme do, how does it benefit buyers and why is its continued existence good news for you as developers?
What is Help to Buy?
One of the stated aims of the Help to Buy equity loan scheme is to support would-be homebuyers. To qualify for the scheme buyers must meet the following criteria:
- be in the market for a house in which they will live
- not want to sub-let or rent out the property to anyone else
- be their only home
- have a purchase price of up to £600,000 (£300,000 in Wales and they need to show they wouldn’t otherwise be able to afford to buy it)
Buyers also need a 5% deposit and a mortgage of up to 75% for the rest (or up to 55% in London). In return, the government will lend them up to 20% (or up to 40% in London).
There are no fees on the loan for the first five years. In the sixth year, people are charged a fee of 1.75% of the loan’s value. This fee then increases every year, in line with the Retail Prices Index plus 1%.
The loan itself can be paid back in full or in part at any time. The full amount needs to be paid back after 25 years or when the home is sold, whichever comes first. The amount people pay back depends on the market value of the property at the time.
Participants in the scheme need to buy through a registered Help to Buy agent in England or through a housing association in Wales.
Why is it good for house builders?
Another stated aim of the scheme is to stimulate the housing supply. The loan terms aim to encourage purchases from people who wouldn’t otherwise be able to buy, so in other words its intended effect is to grow the market. What’s more, the scheme applies only to new builds, so its aim is to grow only that part of the market in which developers are most interested.
Would-be purchasers have to buy their new-build homes from a registered Help to Buy builder. If you are not yet registered you will find a guidance video, further information and a registration pack on the official government website.
It is also worth noting that in its statement this month the DCLG said, “The government also recognise the need to create certainty for prospective home owners and developers beyond 2021, so will work with the sector to consider the future of the scheme.”
So not only is the scheme with us for the next four years, but there’s a chance it will continue in some form beyond that point which can only be good news!
By LABC Warranty
Please Note: Every care was taken to ensure the information in this article was correct at the time of publication. Any written guidance provided does not replace the reader’s professional judgement and any construction project should comply with the relevant Building Regulations or applicable technical standards. However, for the most up to date LABC Warranty technical guidance please refer to your Risk Management Surveyor and the latest version of the LABC Warranty technical manual.