A new cap due to be rolled out for the Help to Buy scheme in April 2021 will make it difficult for first time buyers in the North to find affordable properties.
Currently the Help to Buy equity scheme gives people with a 5% deposit a loan of 20% of the value of a new build property (40% in London), with the balance paid via a 75% mortgage. The scheme, open to both first time buyers and those wanting to move, doesn’t charge interest on the 20% loan for the first five years. It can be used on properties with a value of up to £600,000.
The scheme, introduced in 2013, has enjoyed some success: 210,964 properties were bought with its assistance by the end of 2018.
However, the Government plans to cut the maximum property value that can be purchased using the scheme from April 2021 to £186,100 in the North East, £224,400 in the North West and £228,100 in Yorkshire and the Humber. All other areas of the country will also be capped besides London, which will retain the £600,000 cap. In addition to reducing the value cap, the Government will restrict the new scheme to first time buyers only.
Estate Agent Hamptons International has said that for 2018, the average price of a new build home in the North East was £208,220 – significantly above the cap. It has stated that if the cap were introduced now, around 53% of new build homes in the region would be priced above the threshold. However, they anticipate property prices to rise by a little over 7% by the end of 2020, pushing even more properties out of reach for those wishing to take advantage of the scheme.
Estate Agent Savills has also said it expects property prices to rise by more than 9% in the North West, before the caps are introduced. It also noted that the areas most likely to be affected by the cap are those which have benefited most from the scheme. Wakefield in West Yorkshire for example has seen the greatest uptake, with 740 purchases; whilst Cheshire East has seen the second greatest number at 679. Leeds is also high up the list in terms of uptake at 561 purchases, while Cheshire West and Chester come in tenth with 532 purchases.
With far fewer properties eligible for the scheme, homebuilders in the affected regions will have to either build cheaper houses or lose the revenue that the scheme generates. If homebuilders are unable to meet the demand for more affordable properties, supply is likely to be inhibited where it is needed the most.
The scheme was expected to end in April 2021 but it will now run until 2023 with the new rules applicable in the final two years. Those considering purchasing their first home or moving in the next couple of years may wish to take advantage of the scheme before the rules become substantially more restrictive.