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What is Help to Buy?
Help to Buy is a scheme in which first-time buyers can secure a property with as little as a 5% deposit. Furthermore, the buyer can borrow as much as 20% of the purchase price with an interest-free loan for five years. This scheme greatly impacted the UK property market, which saw record price growth, by increasing market activity for first-time buyers who would otherwise be unable to purchase a home.
The end of Help to Buy arrived at a time when inflation was rising and the combination of the two has caused market activity to slow. While many expected this to cause property prices to fall, this has not happened. Therefore, many first-time buyers are still unable to afford to take their first steps onto the property ladder, as prices and interest rates remain high.
Why Do First-Time Buyers Need Help?
Typically, first-time buyers struggle to save a deposit as rental costs are high. For example, the average rental cost in the UK is £11,075 per annum whilst the average salary for people between 22 and 29 is £26,500. This means renting costs the average earner between 22 and 29 an astonishing 42% of their income, excluding bills and living costs.
The average property price in the UK is £259,700 according to Zoopla, meaning for a first-time buyer to reach a 10% deposit they must save £25,970. Unlike existing homeowners, first-time buyers do not own equity in a property, this means they cannot gain capital by selling their existing home. However, with the Help to Buy scheme, the first-time buyer may only need to save £12,985 towards their deposit.
What is the Effect of Help to Buy?
Around 375,000 first-time buyers benefitted from the Help to Buy scheme during the original period. This helped the property market grow with an influx of activity and sales completing. Additionally, the scheme ran during the pandemic, which saw a record-high property market activity. Furthermore, interest rates were low which meant the buyer was able to achieve a fixed rate with lower repayments.
Since Help-to-Buy ended, interest rates have risen, causing concern with the government’s plans to bring the scheme back. This scepticism is due to high repayments potentially causing issues for buyers, which could lead to debt or even repossession. The plans aim to benefit a similar number of buyers as the first iteration. Demand for property is high and with the assistance needed, first-time buyers will be able to secure property far easier.
What Other Schemes Are Available?
Currently, hundreds of thousands of first-time buyers are looking at schemes such as First Homes and Shared Ownership which both offer alternative solutions to first-time buyers. However, these plans have drawbacks. Shared Ownership allows buyers to purchase a percentage of a property, and then pay a rental fee on the other part. This allows buyers to pay a reduced deposit and live in a property of higher value than they may be able to mortgage. Once they have paid the full equity into the property, they can then increase the equity they wish to own in the property. However, this is often criticised as it can allow buyers to buy a property that is unaffordable to them.
First Homes is a scheme where selected homes are available to first-time buyers at a 30% discount. This allows buyers to meet affordability far easier. However, once the homeowner is ready to sell the property, it must be sold to another first-time buyer at 30% below market value. This scheme is only in effect for new-build properties currently.
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