The Help to Buy (H2B) scheme is due to end in April 2023. It has provided eight years of helping people get a newly built home. A regional price cap was added in April 2021 by the Government to restrict the scheme to First Time Buyers (FTBs). There will undoubtedly be a big hole to fill as the plan ends to continue supporting traction levels.
Over 31,000 properties have been purchased on the scheme in London since 2013. 96% have been for FTBs, where they require a 5% deposit giving many a solution for the hurdle to buying a home in London.
The number of Help to Buy sales is at its highest ever level, with 6,804 sales in 2021, which was boosted by the stamp duty holiday. The scheme has 18 months left before it finishes. We have already seen some other systems that may potentially replace the demand left behind by the H2B scheme.
IN THE UPCOMING FIVE YEARS
Considering the potential replacement of the H2B scheme, below is a London New Build sales forecast for the upcoming five years.
There will be a peak in sales in 2022 because of the demand and the looming end date of the H2B scheme. After Q1 2023, the assumption is that 60% of the H2B users at the moment will continue to buy new builds. The range of the new schemes shown below suggests that this prediction can be met.
This will mean a decrease in sales from 2022, but it is predicted that the sales for the following three years will have similar numbers from 2016-to 2018.
WHAT ARE THE alternatives to the Help to Buy?
The new Government’s affordable homeownership scheme off 30% of new homes compared to the market price. The discount will then move on to future sales. The first homes have to be below £420,000 in London, and they must be for First Time Buyers only. Their income must be below £90,000 to be eligible. Any key workers are prioritised over others for the eligibility for the First Homes.
This scheme is still in its early stages, so how many homes will be available and how many developers have started to factor this into their appraisals is unclear. It has been seen that only 12% of households in London have an income level high enough for them to get a two-bedroom house with a 30% discount.
For the shared ownership scheme, households buy a share of a home and pay the rest in rent to a housing association. Because the owner only needs to pay the mortgage on their share, the deposit requirements become even lower. ‘Staircasing’ gives the buyer the chance to increase their property share until they own 100% of the property.
In the five years 2019-2020, the Shared Ownership scheme has delivered an average of 2,500 homes per year. It has picked up in the past three years, and we are seeing an average of just under 7,000 a year.
Mortgage indemnity products
Lenders can insure their mortgages in the circumstance that the buyer falls behind on their mortgage fees. If the property is sold for less than the mortgage value, they will also have some cover. Lenders will pass this insurance fee onto the borrower, making it more challenging for some households to afford.
‘Deposit Unlock’ is an example of a mortgage indemnity scheme already on the market, offering 95% loan-to-value (LTV) mortgages on new build properties.
‘Market Mortgage’ is another private-sector product bringing housebuilders, lenders and an investment bank to deliver 95% LV mortgages. Beneath the scheme, the lender presents a loan of 85% LTV, while the investment bank tops up the extra 10 %, and housebuilders contribute to all transactions. It already has considerable housebuilders supporting it, including Persimmon, Bellway and Barratt.
Due to the Help to Buy scheme being such a high demand for the world of first-time buyers, it has seen these other sectors not achieving as highly. When H2B ends in 2023, a combination of these private and intermediate products will provide affordable routes onto London’s housing ladder.
Before H2B existed, a selection of developers or housebuilders offered equity loans or part-buy, part-rent products. Even during H2B, we saw innovation from Galliard Homes with H2B Option Scheme and Weston Homes with First-Time secure buy, which both allow buyers to commit off-plan with a £500 reservation payment and 5% deposit.
Address buyer affordability can be noticed by Barratt Homes, which has a new compact product that uses creative storage and intelligent designs to help optimise space and keep capital value.
It is unlikely that the Government will extend the Help to Buy scheme, meaning the need for these other services will greaten and will support the post-H2B.