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Budget 2018: Help to Buy equity loan scheme to end in 2023

Out-Law News | 31 Oct 2018 | 10:49 am | 2 min. read

First-time homebuyers in England will be able to obtain support from the Help to Buy equity loan scheme until March 2023, at which point the scheme will end, the government has announced.

The 2018 Budget documents contain a limited two-year extension to the scheme, which was previously due to end in March 2021. It also confirms that the government "does not intend to introduce a further Help to Buy equity loan scheme after March 2023", citing improved market conditions and the growing number of mortgage products available to first-time buyers.

The Help to Buy equity loan was introduced in 2013, and is projected to support up to 360,000 households into homeownership in England. Users of the scheme, which is not currently restricted to first-time buyers, can obtain a government loan of between 20% and 40% of the purchase price of a new-build home worth up to £600,000, and need only provide a deposit of 5% of the total purchase price. This reduces the size of the mortgage that the purchaser needs to obtain for their new home.

However, the scheme has also been criticised for artificially pushing up housing prices, according to real estate expert David Meecham of Pinsent Masons, the law firm behind Out-Law.com. He warned that the transition away from the scheme could create further market problems if not properly managed by the government.

"Help to Buy has consistently been seen as a mechanism for purchasers to buy properties that were otherwise out of their league, raising concerns that the market has been artificially inflated and purely boosting profits for housebuilders," he said.

"While the extension of the scheme will be a boost for house buyers, it's not the answer to addressing this artificial inflation. The extension of the mechanism to 2023 (with no obvious subsequent replacement), aligned with a future shift in mortgage interest rates and potential affordability issues, could result in a housing slump. No housebuilder will want to see a slump in its profits and cash flows as a result of the government seemingly imposing challenging targets with one hand, only to pull a mechanism to deliver on those targets with the other," he said.

"Better application of funds needs to be outlined as the UK seeks to boost house building. This, combined with greater autonomy for local councils so they can take the lead on housing provision in their local areas, will be the game changer we need in the UK," he said.

From April 2021, the Help to Buy equity loan scheme will be available to first-time buyers only, and restricted to properties priced at 1.5 times the current forecast regional average first-time buyer price or lower. These caps range from £186,100 in the north east of England, to £600,000 in London.

The changes apply to the English Help to Buy scheme only. The Scottish and Welsh governments operate their own separate Help to Buy schemes.

The chancellor made a number of announcements in the Budget aimed at boosting the housing market. These included an additional £500 million for the Housing Infrastructure Fund, aimed at supporting the delivery of up to 650,000 homes by funding supporting infrastructure; and £653m for nine new strategic partnerships with housing associations in England which will deliver 13,000 new homes.

The Budget document also confirms that the Housing Revenue Account cap on local authority borrowing for housebuilding will be abolished from 29 October 2018, as previously announced.

"We can't resolve the productivity challenge, or deliver the high standards of living the British people deserve, without fixing our housing market," chancellor Philip Hammond said in his Budget speech.