The government has announced that a new equity loan scheme in England will be confirmed at next month’s Budget, supporting more people into homeownership.
Your First Home is expected to support 2.5% deposits, backed by 20% government-backed equity loans, for prospective first-time buyers purchasing a new build property from a developer signed up to the scheme.
People will be able to access equity loans with an initial interest free period, meaning that those who use the scheme could save hundreds of pounds per month compared to a 95% mortgage.
The Your First Home scheme will help tackle the deposit barrier for first-time buyers who would be unable to afford their first home otherwise. The scheme will also set a household income cap with local property price caps to ensure support is targeted at those who need it.
With the new build housing market currently facing challenges driven by international economic pressures and rising construction costs, the scheme will also act as a stimulus to support the market and boost housing supply.
Developers will be expected to make a contribution when signing up to the scheme to help cover costs.
Further details, including costs and implementation timelines, will be announced by the Chancellor at next month's Budget.
Alex Slater, Rightmove’s director of new homes, said: "Any measures that help more first-time buyers access home ownership are welcome, particularly at a time when housing developers are facing some of the toughest market conditions in years. Our data shows that the number of new housing developments coming to market has fallen to its lowest rate on record, highlighting the challenges facing the sector.
"Developers continue to manage a combination of viability pressures, affordability constraints and competition from a high level of resale homes on the market. Support should focus on helping to unlock greater affordability, improve confidence to bring forward new developments, and support the delivery of much-needed new homes across Great Britain."
Oli Creasey, head of property research at Quilter Cheviot, commented: "The government's announcement of a new Help to Buy scheme, this time branded as Your First Home, is likely to have a significant impact on the property sector and housebuilding in particular, although the precise level of impact will depend on the details, due to be announced in the October Budget. The government is well behind on its target to build 1.5 million homes during this parliament, and this announcement should help get closer to this goal, although it remains a very challenging target.
"The interest-free nature of the loan is likely to be of particular value given current mortgage rates, compared to the previous version of the scheme that was launched during a much lower interest rate environment.
"The intention of the scheme is to help first-time buyers who would be unable to afford a first home otherwise. It will include a household income cap and local property price cap to help target this support. However, there is no mention of whether buyers' savings will be measured. The prime minister has indicated that this scheme is not intended for buyers with wealthy families - those who can rely on the so-called 'Bank of Mum and Dad' - but the exact design of the scheme will need to be carefully balanced to avoid claims of unfairness, with some first-time buyers having put aside savings into the government's LISA to put towards their first purchase. Any scheme that penalises those savers would risk widespread criticism."
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “The deposit is the biggest barrier to many first-time buyers getting onto the housing ladder if they don’t have the help of the Bank of Mum and Dad. So any assistance here will make a real difference to those struggling to buy on their own.
“However, let’s not forget that Help to Buy worked best for house builders, not so much for first-time buyers.
“Extending a scheme to all homes would be so much better than simply targeting new builds, and I cannot see a huge issue in doing so.
“That said, any stimulus for the housing market is a good thing. The market is flat and needs some intervention to kick start it. More activity and an increase in transactions would benefit not just the housing market itself but the many connected industries and wider economy.”
Rob Houghton, founder and CEO of reallymoving, continued: “This will be exciting news for the many first-time buyers out there struggling to raise a deposit without financial help from their families. Our research found it takes the average first-time buyer in England almost a decade to save enough to get on the housing ladder, including moving costs, and that’s assuming they can put aside 10% of their earnings every month.
“The Your First Home scheme will bring the possibility of home ownership within reach far sooner. A 2.5% deposit on the average first time buyer purchase price in England of £250,000 would be just £6,250 – an amount some will already have saved. Suddenly the dream of home ownership isn’t so far away.
“There is a risk, however, that boosting the buying power of first-time buyers and channelling it into just one part of the housing market could artificially inflate prices. Our research in 2019 found that first-time buyers in England using the old Help to Buy scheme paid 10.3% more for their new build home compared to those buying new builds without the scheme. As buyers with limited means to raise a deposit were funnelled into the scheme, unable to consider other options, developers had scope to charge higher prices.
“First-time buyers should compare prices carefully with homes, new and resale, outside the scheme to ensure they are getting good value for money. We look forward to hearing more in the Budget, including how the scheme will build on the lessons of Help to Buy.”
Lucian Cook, head of residential research at Savills, added: “However much it wants to increase the delivery of council houses, the government needs the private sector to be firing to see the benefit from the planning reforms it has already introduced.
“Without some kind of intervention, it risked permanently losing capacity in the housebuilding sector.
“This announcement has the added advantage of coming at a time when house prices are relatively depressed. That means the government should enjoy a decent financial return on its investment, on the basis we see interest rates fall over the medium term.”
