Help to Buy Schemes
The current Help-to-Buy ISA, where the Government boosted your savings by 25%, closed in November 2019.
However, there are still two other Help-to-Buy options available. The Government’s ‘Help to Buy: Shared Ownership Scheme’ allows you to buy as little as 25% or as much as 75% of a home, and pay rent on the rest. There is also a ‘Help-to-Buy: Equity Loan’ where the Government lends you up to 20% of the cost of your newly built home, so you’ll only need a 5% cash deposit and a 75% mortgage to make up the rest. You aren’t charged loan fees on the 20% loan for the first five years of owning your home. This scheme opened in 2013 and is due to end in March 2023 although more restrictions are likely to be bought in between now and when it closes.
Help to Buy take up statistics
More than 225,000 buyers have taken advantage of the scheme and in the last quarter of 2018 it accounted for over 60% of all new home purchases. There are two major changes due for 2021; only first time buyers will be able to use it rather than existing home owners who have also have access, and 2021 will also see the introduction of regional cap values. These cap values will vary from region to region and will mean that the scheme is only useable on homes below a certain value.
Impact on the regions
Cushman and Wakefield have already identified regions where a large percentage of new home sales are above the cap, South Northamptonshire for example (East Midlands), where 82% of new home sales are already above the cap for the East Midlands region. As a consequence they predict that this could lead to a drop off in demand of around 50-60%.
Potential impact could this have on BTR?
Help to Buy has historically impacted BTR as it has resulted in BTR being uncompetitive in the land market. This may change when the scheme comes to an end.
Help-to-Buy has also been criticised for artificially inflating house prices, according to a Morgan Stanley report in 2017, perhaps by as much as 5%. One possible scenario is that with the end of Help-to-Buy for first time buyers they will not be able to enter the owner-occupied housing market and will end up renting for longer. The attitude to renting is becoming more acceptable. It offers more flexibility, a set budget of out goings, and no unexpected costs for repairs or maintenance. 40% of net income in London is spent on rents and 30% in the regions.
BTR housing is on the increase especially in the regions where developers and house builders may not see purchases from first time buyers through Help-to-Buy schemes. However, they may well see institutional investors stepping in and purchasing on bulk at a discount with the intent of renting the houses for the long term. BTR may become a solution for the developers and those first time buyers who find that owning a house is out of reach come 2023, who are happy to be in a good quality rental house which is well managed for a longer period.