A flagship policy of the coalition Government of 2010-2015, the house buying scheme was brought in in 2013. The scheme has not been without its controversies, with some saying it has allowed developers to profit unfairly and that it has pushed up house prices across the board.
What is Help to Buy?
Help to Buy comes in two forms – one is a shared equity scheme designed to help people get on and move up the property, and the other is a ISA
Help to Buy loan was introduced in 2013 and allows buyers to put down a deposit of as little as 5 per cent on a new build home and receive an equity loan from the Government for up to 40 percent of its value.
From April next year, it will be available for first-time buyers only and with regional price caps. It is set to end completely in 2023.
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The Help to Buy ISA was closed to new applicants in 2019.
The scheme has been extended in Scotland for another year from June.
Existing account holders still hold savings in their Help-to-Buy ISAs, but must claim their 25 percent bonus, payable on completion of a first home purchase, by December 2030.
More than 225,000 buyers have taken advantage of the help to buy equity loan scheme, and its popularity has soared over time – in the last quarter of 2018 it accounted for over 60 per cent of all new home purchases.
So far it has been available for existing homeowners as well as first-time buyers, but from 2021 only first-time buyers will have access the remainder of the scheme.
Not everyone will mourn the passing of the Help to Buy scheme.
One of the main criticisms it has attracted is that it has artificially inflated the prices of new homes so the main beneficiaries have been the property developers.
According to a 2017 report by Morgan Stanley, builders can charge an extra five percent for properties sold through the scheme.
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Another perceived drawback is that the scheme only applies to new homes, which do not appreciate in value as fast as older ones.
This is because new builds can sell for up to 16 percent more, but lose this premium after a few years, offsetting general growth in the property market.
Buyers of new-build homes may therefore be paying around 21 percent more in real terms, and could find it has or will take longer to upsize to their next home, which is particularly important given the true association between buying a home and starting a family.
Similarly, the ISA has been unpopular for some due to the fact that savers are penalised if they withdraw their savings before the age of 60 for any reason other than buying a first home.
The 25 percent bonus is withheld from those that need to withdraw it, which some see as unfair.
As it currently stands, nothing is in place to replace the equity loan.
Why is Help to Buy controversial?
The scheme has been met with heavy criticism – some say it has artificially inflated the market and actually made things more difficult for wannabe homeowners, as well as it being a cash cow for property developers.
David Meecham, real estate partner at Pinsent Masons, told the Financial Times: “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.
“While the extension of the scheme will be a boost for housebuyers, it’s not the answer to addressing this artificial inflation.”
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