Help to Buy headwinds?

With the Help to Buy scheme changing in the first quarter of next year, we take a look at how it’s become a rite of passage for many first-time buyers purchasing their home and whether that could change.

Currently, 15% of people buying their first home in England use the Help to Buy scheme, and government estimates suggest that for around two-thirds of these purchasers, it is the only way they can afford any home. Since the scheme is the only way to get on the housing ladder for some, buyers who use it are some of the least location-sensitive in the country.

Since May 2020, someone buying a home moves an average distance of 3.9 miles, while someone using the Help to Buy scheme moves more than twice as far, a median of 8.5 miles. With Help to Buy offering a cost-effective way of buying for those with a 5% deposit, buyers with lower levels of savings are being limited to developments offering Help to Buy. And the Covid crisis is likely to exacerbate this, with many lenders requiring larger deposits, further reducing the options of a first home purchaser with a small deposit.

So with limited options, 73% of Help to Buy purchasers this year only viewed new homes before buying, a figure which has changed little since the start of the scheme and has risen since May. The changes to the Help to Buy scheme early next year, which will see it restricted to first-time buyers and the introduction of regional price caps, will come at a time when some lenders are still likely to be rationing their higher loan-to-value mortgage products.

And as a result, we expect that over the next 12 months, despite the price caps, Help to Buy will become an even bigger draw for first-time buyers, with more considering new build as a way to purchase their first home.

We expect the scheme to support a larger proportion of first-time buyers next year than in 2020. While this will partly be driven by tougher credit constraints, it will also be a product of how first-time buyers and developers react. The willingness of buyers using the current scheme to move to an area that they can afford suggests the compromise required to navigate price caps will not deter many.

Given time constraints, housebuilders have stopped short of completely re-planning future schemes to maximise the number of homes eligible under the new price caps, some have applied to make ‘minor material amendments’ to their existing planning permission. In some cases, this has involved replacing larger homes with smaller ones at lower price points.

All this is likely to mean that over the next two and a half years, we will see more first-time buyers considering purchasing a new home, as well as Help to Buy being used on a higher proportion of eligible properties. Ensuring developments are ready for the new Help to Buy scheme will be essential in ensuring the smooth transition between the old and the new programs without alienating would-be buyers.