First-time buyers account for a lot more than eight in ten purchases made while using government's Help to Buy equity loan scheme, based on new data in the Secretary of state for Housing, Communities & Municipality.
Of the 210,964 properties bought because the launch from the scheme in April 2013 and the end of this past year, 171,053 went to first-time buyers.
Help to Buy equity loans were introduced by governments in England, Wales and Scotland to help people on to the property ladder.
But while Help to Buy continues to be hugely popular, there are a variety of pitfalls that prospective buyers ought to be wary of, some of which made one first-time buyer we spoke to reluctant to use the scheme whatsoever.
Here, we explore how Assistance to Buy works and explain the advantages and disadvantages of utilizing an equity loan.
40,000 first-time buyers used Assistance to Buy in 2022
Help to purchase is becoming increasing popular with first-time buyers wanting to get on to the property ladder.
In 2022, 42,748 properties were bought by first-time buyers using an equity loan, up from 37,478 in 2022.
The table below shows the number of properties purchased by first-time buyers every year because the scheme was introduced.
| Year | Completions |
| 2022 | 42,748 |
| 2022 | 37,478 |
| 2022 | 30,673 |
| 2022 | 25,069 |
| 2022 | 22,618 |
| 2013 | 12,467 |
What is Help to Buy?
The governments in England, Wales and Scotland all offer Help to Buy equity loans.
The biggest equity loans can be found in London, where buyers can borrow up to 40% of a property’s value in the government. This means that you can put down a first deposit of 5% and remove a home loan around the remaining 55%.
The loan is interest-free for the first five years, then you’ll need to start paying interest. You’ll need to repay the borrowed funds entirely after 25 years or when your mortgage ends, whichever comes first.
Help to Buy is available to first-time buyers and home movers but is fixed to new-build homes on developments which are taking part in the scheme. The London scheme is much more generous than elsewhere in Britain, as the table below shows:
| Help to purchase scheme | Maximum equity loan | Maximum property price |
| England (excluding London) | 20% | lb600,000 |
| London | 40% | lb600,000 |
| Scotland | 15% | lb200,000 |
| Wales | 20% | lb300,000 |
Challenges with Help to Buy
There are some points to consider if you're thinking about getting an equity loan.
The first is the interest you'll have to repay around the loan, which kicks in after 5 years of ownership.
From year six of the equity loan onwards you'll have to start paying interest at a rate of just one.75%. This rises by any increase in the Retail Prices Index (RPI) along with an additional 1%.
The government utilizes a representative RPI of 5% in the official calculations.
The table below shows how much interest you might expect to pay on the lb200,000 home with a 20% equity loan (lb40,000) outstanding.
| Year | RPI+1% | Annual interest | Annual cost (interest plus lb1 per month management fee) |
| 6 | 6% | 1.75% | lb712 |
| 7 | 6% | 1.86% | lb754 |
| 8 | 6% | 1.97% | lb799 |
| 9 | 6% | 2.08% | lb846 |
| 10 | 6% | 2.21% | lb896 |
Availability
Another concern is that limited availability of properties offered under the Help to Buy scheme.
Research published captured says the amount of Assistance to Buy properties in London fell 64.3% in February 2022.
The borough of Hammersmith and Fulham, for example, only had one Help to Buy property easily obtainable in February, making it the worst London Borough for Assistance to Buy property availability.
Price
Help to purchase has additionally come under fire for inflating the price of new-build homes.
According towards the Land Registry’s House Price Index, the typical cost of a new-build home at the end of 2022 was lb301,483 – well more than the lb243,102 recorded for resale properties.
Case study: ‘Initially we considered using Help to Buy, however i was sceptical’
First-time buyer Danni Croucher considered while using Help to Buy scheme when she and her boyfriend Jack were hoping to find their first home.
After scrutinising the scheme, however, the 24-year-old from Twickenham decided against getting an equity loan.
She says: ‘When Jack and that i initially started looking for properties we thought about using the Assistance to Buy Equity Loan Scheme.
‘After researching the scheme a little more, I came to be sceptical about whether we'd get the best return.’
The couple found the interest and fees that might be used in year six of the equity loan to become a major concern.
‘When we desired to not pay the fees we’d need to sell our property before the five years were up. And at that time, there was no guarantee that we'd cover the cost of a good enough go back to move onto a new home,’ says Danni.
‘Essentially we wanted a house that people could reside in without the burden and stress of having to sell before i was ready and decided against using an equity loan.’
Danni and Jack used numerous savings accounts to help them increase your deposit.
‘Eventually, Jack and that i managed to reach our 10% deposit target of lb25,600 by pooling our savings and inheritance.’
‘We’ve now moved into our new house and can’t wait to really make it our very own.’
New Assistance to Buy scheme from April 2022
In last year’s Autumn Budget, the government announced it would replace Help to Buy with a new scheme limited to first-time buyers from April 2022.
The scheme will run for two years, until 2023.
Prices is going to be capped at 1.5 times the current forecast average first-time buyer house price in each region – having a maximum of lb600,000 set in London.
The caps will be the following:
| Region | Help to Buy equity loan price cap (2022-23) |
| North East | lb186,100 |
| North West | lb224,400 |
| Yorkshire & the Humber | lb228,100 |
| East Midlands | lb261,900 |
| West Midlands | lb255,600 |
| East of England | lb407,400 |
| London | lb600,000 |
| South East | lb437,600 |
| South West | lb349,000 |
Alternatives to assist to Buy
If you don't qualify for Help to Buy or just don't like the sound of the equity loan scheme, there are several Help to Buy alternatives to consider.
Shared ownership
Shared ownership enables you to buy a share of a property – usually between 25% and 75% – and pay rent to some housing association on the other property.
Some shared ownership schemes allow you to increase the share of the property you own at a later date through a process called ‘staircasing’, however this can be costly.
Rent to Buy
Rent to Buy was brought to help people save enough of a deposit to get to the property ladder.
The scheme allows you to rent a home at 20% underneath the normal market rate for up to five years.
During this time you’ll get the choice to either buy the entire property or purchase a portion of it through shared ownership.
The number of Rent to purchase properties available is quite limited and you'll have to pass additional eligibility criteria depending on the housing association that the property is offered under.
Get help from your parents or family
Aside from opening the doors to the infamous ‘bank of mum and dad’, there are a variety of the way that folks might help first-time buyers.
Guarantor mortgages allow parents to take on a few of the lender’s mortgage risk by guaranteeing to satisfy any repayments if you fail to make yours on time.
Alternatively, joint mortgages permit you to purchase a property together with your parents, although, they could face a 3% stamp duty surcharge If they already own a home.
