What next for Help to Buy?

Changes to the Help to Buy scheme from early next year will see it restricted to first-time buyers and the introduction of price caps, set at 1.5x the average price paid by a first-time buyer in each region. On paper this will mean that 45% of new homes marketed in 2020 will not be eligible for the new scheme by virtue of being priced above the price cap. Across England as a whole 11% of one-beds, 26% of two-beds, 40% of three-beds, 82% of four-beds and 93% of five-beds were priced above the cap and would not be eligible from April 2021.

Help to Buy is already disproportionately used by first-time buyers to purchase smaller homes, and so it is areas where a larger share of smaller homes that sit above the cap which are likely to feel the impact of the new price caps hardest. Since far fewer four and five bed homes are bought using Help to Buy, the imposition of the price caps will likely make a smaller difference to the take-up of the scheme, despite the vast majority of these homes now being priced above the new threshold.

The transition between the old scheme and the new scheme will come at a time when some lenders are still likely to be rationing their higher loan-to-value mortgage products. 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 the best way to purchase their first home.

From next year we expect Help to Buy to support a larger proportion of first-time buyers than in 2020. This will predominantly be driven by tougher credit constraints, meaning Help to Buy will likely be the only way many first-time buyers can purchase a home. The price caps may see a two tier new build market emerge with 50-80% of all one and two-bed homes in each region being sold using Help to Buy, while just 10%-20% of homes with three or more bedrooms will be sold using the scheme.