End of Help to Buy: What's The Alternatives For First Time Buyers?
When is the Help to Buy scheme ending and what are the alternatives? Here are a few ways to get on the property ladder without the government equity loan.
The Help to Buy equity loan scheme, which has helped more than 350,000 first-time-buyers get on the property ladder, is ending in March 2023.
The scheme was introduced by the government in 2013 to help people buy new build homes with a small deposit. Often, they’d only needed to save 5% of the property’s price themselves. A further 20% of the sale price (40% in London) would be covered by a government loan. A mortgage could be used for the rest.
The equity loan repayments are interest free for the first five years of the mortgage, meaning the buyer would only make capital payments during that time. After those five years, they would be charged interest on the loan amount. Initially, the interest rate would be 1.75% before increasing in line with the Consumer Prices Index each year and an additional 2 percentage points.
So, is Help to Buy still available and what are the alternatives? If you’ve been saving to buy your own place, read on to weigh up your options.
Is Help to Buy still available?
The Help to Buy scheme closed to new applications on the 31st October 2022. It’ll end completely on the 31st March 2023.
If you’ve already applied for the scheme, you have until the end of March to legally complete your home purchase. According to gov.uk, to be eligible for your equity loan, you must also be expected to have the keys to your home by 6pm on that date.
Your home builder has until the 31st December 2022 to finish building your home and ensure a warranty is in place. If they cannot finish your home on time, they must return your reservation fee to you in full.
Why is the Help to Buy scheme ending?
The government hasn’t explained exactly why the Help to Buy scheme is ending. There are no plans to replace it either.
Although many new-build homeowners are grateful to Help to Buy, the scheme has also come under scrutiny. A House of Lords report said it has caused house prices to rise by more than the loan was worth to buyers, meaning that it’s not always good value for money.
Since Help to Buy can only be used on new build properties, this can also cause problems. New builds can quickly lose their value, meaning that many first-time-buyers are at a disadvantage when they’re ready to sell. If they sell the home for less than they bought it for, this can make it difficult to pay the government back.
What are the alternatives to Help to Buy?
If you were pinning your homeownership dreams on Help to Buy, worry not. There are plenty of alternatives:
Shared ownership is a popular option for people who can’t afford the home they want. Rather than using a mortgage to buy the whole house, you buy a share of the property and pay rent on the rest.
Usually, you’ll buy a share between 10-75% of the home’s full market value. You can take out a mortgage for this or use savings if you have enough.
The remainder of the property will be owned by a housing association, local council or another organisation. They’ll be classed as your ‘landlord’ and you’ll pay them rent each month.
All shared ownership homes are leasehold properties. This means you’ll usually need to pay ground rent and service charges on top of your rent and mortgage payments. Think about how manageable these costs will be before you apply.
Over time, you can ‘staircase’ your way to full property ownership. This means buying more shares in your home and spending less on rent.
Even though you’ll pay rent on a percentage of your home’s value, you’ll be responsible for repairs and maintenance. This can be costly, but you’ll have the freedom to decorate without having to ask your landlord’s permission. You may need to get approval before making any structural changes, though.
If you’d like to buy a shared ownership property but you’re unsure whether you’ll be accepted for a mortgage, we can help. We’ve helped thousands of people get a mortgage in principle. Let’s see if we can help you too.
Private equity loans
Although it’s no longer possible to get an equity loan from the government, there are plenty of private equity loans to choose from. You can combine private equity loans and a mortgage to increase buying potential.
Proportunity lets people borrow up to £150,000 more than they could if they bought a home with just a mortgage.
According to the calculations on its website, a single home buyer with a household income of £30,000 and a £10,000 deposit may be able to buy a home worth roughly £134,000 if they just took out a mortgage from a high street lender. But that same person could increase their buying potential to £179,000 if they were to get an equity loan from Proportunity, as well as a mortgage elsewhere.
Another option is Ahauz, which helps first-time-buyers in England and Wales boost their home buying budget by up to £100,000.
While traditional banks will usually lend between 4-5 times your income, Ahauz could help you borrow up to 6 times your income.
And then there’s Even, which calls itself ‘your shortcut to home ownership’ and offers to triple buyers’ deposits. If you have a small deposit or you’re restricted by your income, this could be an option for you.
Even is slightly different to Ahauz and Proportunity, in that you don't pay interest on the equity loan. Instead they take a larger share of any profit or loss when you sell your home. This is a good option for buyers who might need to keep their monthly payments lower.
If you’re struggling to afford your dream property or you want to increase the amount you can afford, we can help you find the right equity loan for you. More than 20,000 customers have used our service to boost their affordability. You can see what they have to say on our testimonials page.
Joint Borrower Sole Proprietor mortgage
A joint borrower sole proprietor mortgage allows buyers to increase the amount they can borrow by adding a friend or family member’s income onto their mortgage application.
We can help you do this, but we like to call this type of mortgage ‘Income Boost’ - because ‘proprietor’ is hard to say and even harder to spell.
Since most lenders only offer mortgages between 4-5 times your salary, it can be hard to get a mortgage if you’re single or you don’t have a massive income.
If you earn £30,000 a year, for example, and the bank is willing to multiply your income by 4, you could borrow up to £120,000. If you’ve got a £20,000 deposit, this gives you a total budget of £140,000. Depending on where you want to buy, that might not be enough.
This is where Income Boost comes in. If your dad earns £40,000 and is willing to act as your ‘Booster’, you can combine your incomes together to borrow more than twice as much.
So, if we take both your incomes (£70,000) and multiply that by 4, this gives us a mortgage of £280,000. Add your £20,000 deposit and you could buy a house worth £300,000.
If that’s still not enough to buy the house you want, you could potentially add another eligible Booster to the mortgage.
Although your Boosters will be jointly responsible for the mortgage payments, they won’t own a share of the property itself. It’ll be all yours.
It can be hard to save a deposit while renting, so it’s no surprise that many renters believe home ownership is out of their reach. If a deposit is what’s standing between you and your dream home, rather than your income, a Deposit Boost might be right for you.
A Deposit Boost lets you increase your down payment with the help of a home owning family member or friend.
If your mum wants to help you buy a house but she doesn’t have thousands of pounds sitting in her bank account, this could be the key to your own place. It may be possible for her to remortgage her property so that some of the equity can be used for your deposit.
Unlike traditional guarantor mortgages, a Deposit Boost doesn’t connect the buyer to the Booster financially. This means that if you were to default on your mortgage payments, your mum (or whoever it is that helps you) wouldn’t be liable. That’s because a Deposit Boost requires two different mortgages. The remortgage to release equity and a separate mortgage on the buyer’s home.
A Springboard mortgage is another alternative to Help to Buy — and you don’t need a family member with a high income or home of their own.
This type of mortgage lets your family member use their savings to boost your loan amount, without having to give you a deposit.
Instead, your family member will put a percentage of the property’s value in a designated savings account with the lender. The money will be used to offset the mortgage and, as long as you pay your mortgage each month, they’ll get the money back after an agreed time frame.
The money will earn interest while it’s in the savings account, so unless you default on your mortgage, your family member will get back more than they put in.
There’s also the Lifetime ISA, which allows first-time-buyers to save up to £4,000 of their own money each year to benefit from a 25% top up from the government.
This means that if someone maxes out their Lifetime ISA for three years, their £12,000 deposit will be boosted by a £3,000 government bonus.
The Lifetime ISA can be used in conjunction with other first-time-buyer opportunities, such as shared ownership or Family Boost mortgages.
But it won’t be suitable for everyone. For example, you can only use the Lifetime ISA on a property worth up to £450,000. So if you live in an area where it’s hard to find homes for this price, you might be better off saving your deposit in a traditional savings account or ISA.
If you’re keen to get the ball rolling and get on the property ladder sooner rather than later, we can help. By giving us just a few details, we’ll work out how much you can borrow so you can begin the search for your first home. Let’s get started.
Words by Jenni Hill.