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Help to Buy Scheme 2021-2023

Introduction to the 2021 to 2023 Help to Buy Scheme

As of the 1st April 2021 the current Help to Buy equity loan scheme will be restricted to first-time buyers and regional property value price caps will be introduced. You can apply for the new scheme from 16th December 2020 which will end in March 2023. If you are buying using the current Help to Buy scheme you will need to complete your purchase by 31st March 2021. The new scheme aims to financially help first time buyers to get on the property ladder.

Who is eligible for the new Help to Buy scheme?

To be eligible for the new Help to Buy scheme you and anyone you are buying with must be first-time buyers. If you are married or in a civil partnership you will have to make a joint application with your spouse or civil partner. 

The value of the property, to which this loan can apply, is capped based on the area the property is situated in. You can access the government's Help to Buy Equity loan website via this link: http://www.helptobuy.gov.uk/equity-loan/help-to-buy-equity-loan-2021-2023/

What is the breakdown of the loan?

The scheme will provide an equity loan of a minimum of 5% and up to 20% of the market value of the newly built property. This can increase to 40% if the property is in London.

You will be required to pay a minimum deposit of 5% of the purchase price. You must also arrange a repayment mortgage of at least 25% of the purchase price.

The equity loan will be secured against your property in the same way as a repayment mortgage.

You can find a third party calculator for the Help to Buy Equity loan here at www.bankrate.com

What about repayments?

There are no monthly repayments to reduce the total amount of equity loan you borrow. You can pay off all or part of your equity loan any time before then. Part repayments must be at least 10% of your property value at that time. 

When you repay your loan in full or in part the amount you pay back is calculated as a percentage of the market value at the time you choose to repay. For example, if the property value increases you will have to repay more than the original loan amount. 

The first 5 years of the loan term is interest free. From the 6th Year onwards, you will be required to pay a monthly interest fee of 1.75% of the equity loan.  Interest fees will rise for each following year in April by the Consumer Price Index (CPI), plus 2%. You will continue to pay interest until you repay your loan in full.

You must repay the loan in full:

  • At the end of the equity loan period which is usually 25 years. 
  • When you pay off your repayment mortgage.
  • When you sell your home.
  • If you do not comply with the terms of the equity loan.

What are the potential positives and negatives of the new Help to Buy scheme?

Pros:

  • You are able to get on to the property ladder sooner.
  • You can purchase a new home with a smaller deposit.
  • The loan is interest free for the first 5 years.
  • After 5 years you will receive a competitive interest rate.
  • Access to cheaper mortgage rates.
  • You only need to raise a 5% deposit of the purchase price
  • You have 25 years to pay back the loan in full.
  • No maximum household income cap on this scheme.

Cons:

  • Your loan will be increasingly expensive as the loan interest increases.
  • Your loan amount is not fixed because it is based on the property’s current price.
  • You are limited to certain new build homes, no resale homes.
  • You can only use specific lenders, not all providers offer Help to Buy mortgages.
  • You cannot buy homes valued over the area cap.
  • The loan must be repaid in chunks of at least 10%. The amount you repay is also not fixed and will fluctuate with the value of your home.

Need further legal advice?

If you require further assistance or advice on any of the above please do not hesitate to contact our Residential Conveyancing Property team via email at [email protected] or by contacting our Chichester, Fareham or Havant office.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice, and should not be relied upon as advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. All content was correct at the time of publishing. Legal advice should always be sought in relation to specific circumstances.