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  • Writer's pictureMortgage Tree

Record number of homes bought with Help to Buy equity loan – but costs rise

The number of homes bought through the Help to Buy equity loan scheme reached a record high in the year to June, according to new figures. But the cost of using the scheme increased too. We explain all.

Some 60,634 homes were bought through the Help to Buy equity loan scheme in the year to June 2021. This marked a jump of 43% compared to the year to June 2020, when the figure stood at 42,318, says the Department for Levelling Up, Housing and Communities.

The rise in the year to June 2021 comes despite the fact the Help to Buy equity loan schemes changed in that period which meant fewer people could use the scheme. The old scheme – which was open to all types of buyers – was due to end on 31 March 2021 however due to covid-related delays in the buying process this was extended to 31 May 2021. The new scheme has different rules, including only allowing first time buyers to use it.

Rising house prices mean increased costs

When you take out a Help to Buy equity loan, you’re borrowing a percentage of your home’s value, not a fixed amount. This means if your home’s value increases, so does the size of your loan.

Brokers Hargreaves Lansdown analysed the impact of recent house price rises – figures show the price of the average UK property rose by over £31,000 in the year to June 2021.

It found if you bought the average priced property in June 2015 and borrowed 20% from the government, then repaid the loan in June 2020, you would have had to pay back £7,581 more than you borrowed.

But its analysis showed rising house prices mean that someone who bought in June 2016 and repaid the loan in June 2021 would have had to repay £10,557 more than they borrowed. This is a difference of almost £3,000.

However, it’s not all bad news for homeowners. Paula Higgins of the HomeOwners Alliance explains, ‘Rising property prices may mean the size of your equity loan increases. But it also means you’ll have more equity in your home too. And the more equity you have in your property, when you come to remortgage you may get access to better mortgage deals.’

Record number of properties bought using Help to Buy ISAs

June 2021 was also a record month for homes being bought using Help to Buy ISAs, with 10,989 properties purchased using one. This was a 44% jump on the previous month.

Help to Buy ISAs, which are no longer available to new applicants, allow savers to deposit up to £200 a month and receive a 25% government bonus capped at £3,000 when you buy your first home.

However, while it may be too late to open a Help to Buy ISA you can still open a Lifetime ISA if you’re eligible. These are for those aged 18-39 and are for buying a first home or for retirement. You can put in up to a maximum of £4,000 a year until you’re 50. And you’ll get a 25% bonus on your savings of up to £1,000 a year.

Beware the ‘Help to Buy premium’

There are lots of reasons that make using the Help to Buy equity loan scheme attractive; you’ll be able to buy a brand new home with just a 5% deposit. However, while you may know you’ll pay a premium to purchase a new build home, did you know you could be paying an even bigger premium if you’re buying through the Help to Buy equity loan scheme?

In fact research in 2019 by reallymoving found first-time buyers using a Help to Buy equity loan paid up to 22% more for homes than those who bought without using the scheme.

Is Help to Buy worth it?

As with all schemes, there are pros and cons. The Help to Buy equity loan scheme is helpful to first timer buyers struggling to get on the property ladder. But don’t jump in without doing your research first. Here are some factors to consider:

  • 95% mortgages: Mortgages for people with a 5% deposit had virtually disappeared when the pandemic started but they have returned following the announcement of the mortgage guarantee scheme. So speak to a broker about your options – it may be possible to buy a home with a 5% deposit without using the Help to Buy equity loan scheme.

  • More choice of properties: If you can get a 95% mortgage you’ll be able to buy on the open market which means you’ll have a much greater choice of properties. And you may be able to buy a suitable property for much less.

  • Negotiate: Whether you’re buying a new build or not, do your research and try to negotiate the price down. Read more in our guide How to make an offer on a house and negotiate on the price

  • Research: Buying a new build comes with a premium. So make sure your new property is fit for purpose because if you want to move soon after you’ve bought it you might find you’re in negative equity. Here’s what you need to know before buying a new build


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