Three cheers for Help to Buy but don’t forget to do your homework first

A new flat could be yours with a small deposit via Help to Buy – but do read the small print.

There was good news this week for anyone hoping to buy their first flat via the Government’s Help to Buy scheme. A new and improved offer will run from 2021 to 2023, with some new safeguards written in. Builders must now sign up to the Building Safety Charter (when it’s launched) if they are selling homes under Help to Buy in blocks above 18 metres – or 6 floors, whichever is lower. And any ground rent on the sale of leasehold properties through the scheme must be restricted to a peppercorn rent.

The Government-funded scheme allows buyers to purchase a new-build home with a 5% deposit plus an equity loan from the government and a mortgage for the remaining balance. The scheme includes regional property price caps. The caps take average first-time buyer prices for the region (inflated to account for property price growth) and add a further 50% to ensure there is good availability of the scheme.

Since it was originally rolled out in 2013, it has helped more than 200,000 home buyers, but it’s also faced accusations of inflating house prices and lining developers’ pockets. The Government seems to have taken these criticisms on board. For starters, it will be restricted to first-time buyers. Now, defined in line with stamp duty land tax exemption, the scheme will only be applicable to people who have never owned a property before. All buyers will be entitled to view the actual home being purchased (with their own surveyor if desired) before legal completion of the sale.

Developers who want to use the Help to Buy scheme must now sign up to a range of new quality measures to improve consumer experience and safety. As we blogged yesterday, builders must be subject to adjudication provided by the New Homes Ombudsman and the preceding voluntary scheme (when established). Those housebuilders with a Home Builders Federation star rating must show it clearly on all Help to Buy-related communication and advertising and all homes built from May onwards must comply with the most recent energy efficiency requirements.

Despite all this, there is still a strong element of Caveat emptor or buyer beware, about this initiative. It’s been really helpful for people who otherwise could never have afforded to make the move from renting to buying. But the way the equity stake from the Government works is complicated and despite getting a 5-year interest free period, after that monthly payments will go up. You can only buy selected properties from certain developers and get a mortgage from selected lenders – and any profit you make when you sell your flat will be shared with the Government; they will take back 40% of the sale.

So the message here is that potential buyers really can benefit from the scheme – which does look better this time round. But they do need to go into Help to Buy with their eyes open – and do their homework.