The Help-to-Buy ISA has been closed to new applicants since 2019, and another popular home-buying resource – the Help-to-Buy equity loan scheme – is due to end in March 2023. It may seem that this will make it even harder for first-time buyers to get on the property ladder, however it may not be as bad as it looks.
Why is Help-to-Buy ending?
Whilst the Help to Buy Scheme has managed to help thousands of First Time Buyers purchase their first property, it’s equally fair to say that some of the criticisms of the scheme are valid.
One of the main criticisms it has attracted is that it has artificially inflated the prices of new homes, so that the main beneficiaries have been the property developers.
According to a 2017 report by Morgan Stanley, builders can charge an extra 5 per cent for properties sold through Help-to-Buy. Another perceived drawback is that the scheme only applies to new homes, which do not appreciate in value as fast as older ones (because new builds can sell for up to 16 per cent more, but lose this premium after a few years, offsetting growth in the property market generally). Buyers of new-build homes may therefore be paying around 21 per cent more in real terms, and may find it takes longer to upsize to their next home.
As a mortgage broker, we have also found it increasingly more challenging to help customers remortgage, with the Help To Buy loan remaining in place, especially if the aim is to release some equity for Home Improvements/Debt Consolidation etc.. In some cases we have found that the Market Value of the property hasn’t increased in line with the Purchase Price, meaning that people can be left stuck to remortgage to a new lender (and a potentially better rate of interest), because there isn’t equity to raise any additional funds
The Help to Buy Scheme was always meant to be a temporary measure by the government to help First Time Buyers, and keep the property market alive, however now seems as a good a time as any to but the brakes on.
What is replacing the Help-to-Buy equity loan?
Although there is as yet no replacement lined up for the Help-to-Buy equity loan scheme, the replacement for the Help-to-Buy ISA is already here. The Lifetime ISA (LISA) offers a similar 25 per cent bonus on savings, though since you can deposit more each year (and over a longer timeframe) the total bonus is potentially much bigger (up to £1,000 a year, over a maximum 32 years). The bonus is also payed at the end of each tax year – rather than on home completion – making it potentially more useful for first-time buyers. Savers can also invest as well as save in cash.
Despite its clear advantages, the LISA isn’t yet anywhere near as popular as the previous Help-to-Buy ISA. It’s only offered by 13 providers, and only three offer a cash-based LISA.
Private Equity Loan Providers
In recent months, there has been an increase in new lenders offering a new alternative to the Help To Buy Scheme. Rather than being Government funded, these loans work more like a personal loan, or small 2nd charge loan.
The options at the moment are fairly minimal, however it is expected that this type of loan will gain momentum and become more widely available as we edge closer to March 2023.
Companies such as Even (https://www.joineven.com/) & Proportunity (https://www.proportunity.co/) are currently offering some very good alternatives, which don’t have some of the normal restrictions of the Government Help To Buy scheme.
New mortgage lenders
Whilst the established high street banks and building societies are always going to be in the position to offer the cheapest products, sometimes their lending criteria can be quite rigid.
More and more new lenders are emerging who have recognised the need to be able to offer more flexible lending, and lending on a more “bespoke” basis.
Lenders such as Generation Home (https://www.generationhome.com/) are one such lender who have been born out the company owners own frustrations when purchasing their first home, and finding the rigid lending criteria of established lenders to be massively difficult to work with.
Generation Home offer some unique lending options for first time buyers, such as their Income Booster & Deposit Booster products, that allow First Time Buyers to add friends & family to the mortgage to help reach the required loan amount. They have also recognised the frustrations for Self Employed people with only one year of income, and offer some very flexible criteria in that field.
Much like the Private Equity Loan providers, there aren’t a large amount of lenders like Generation Home at the moment, but this is expected to increase over the course of the next 12 months.
Speak to an adviser
With these changing times, and some relative uncertainty as to the Governments plan to offer a scheme to replace the Help To Buy loan, it is more important that ever to speak to a qualified, and experienced, adviser to make sure you understand your options.
Each of the options listed above will have their pro’s and con’s, and are unlikely to suit everyone. Each will come with specific terms and conditions that need to be clearly understood before signing up, and an adviser will be able to guide you through the jargon.
Advantage FS are here to help, so please do get in touch if you would like to learn more about these options, and we’d be more than happy to guide you through it.
Book a free consultation here: https://advantagefs.co.uk/#
Tel: 0117 4420604