According to central government data, since the launch of the initial help to buy scheme, which ran from 1 April 2013 to 31 March 2020 (extended to the end of March 2021 for transactions in progress), nearly 275,000 properties have been bought with the aid of a government issued equity loan amounting to over £16 billion. That scheme has now ended but, in line with the government policy of stimulating the post-Covid economy by building more houses, a new platform has been announced (which largely repeats the old one, it must be said).
First time buyers of newly built properties will be allowed to apply for an equity based mortgage (repayable to the taxpayer over 25 years) for up to 20% of the full purchase price (or up to 40% in London), subject to a regional price cap for the relevant region. Eligible purchasers will need to have an approved lender mortgage for the balance of the purchase price of at least 80% (60% in London) and must always contribute a 5% cash deposit.
From the homebuyer’s perspective, the process is relatively smooth and user friendly (and not involving much more paperwork than that they already have to deal with for their “main” mortgage.) The real bureaucracy and administration is largely taken up behind the scenes by the developer with the government. The headlines to be aware of are:
- Housebuilders will be required to enter into a new ‘Funding Administration Agreement’ with the government agency responsible, Homes England, for the years of operation being 2021-23,
- Housebuilders will not be able to participate in the new scheme or offer it to customers unless and until they are fully in contract with Homes England under this new Agreement. If housebuilders do not comply then they will have their applications rejected.
- Housebuilders will need to review the detailed Participation Guidance
- Key Longstop Dates – for each financial year of the scheme, dwellings must have reached practical completion in Year 1 by 31 December 2021 or in Year 2 by 31 December 2022. Legal completion for eligible dwellings must take place by 31 March 2022 (for year 1) or 31 March 2023 (for year 2).
- When applying to register, developers will have to provide sales estimates for each financial year. The Homes England Forecast Management Module (FMM) will be opening shortly.
- Homes England anticipate carrying out due diligence from mid-September with first contracts from mid-October to December, who can then market the product.
The devil will be in the detail of course but this has to be good news for first time buyers of new builds and developers especially, whom no one will argue did very well out of the last scheme. The bigger house builders will already have their systems in place to deal with the administration process but the smaller developers and those newly formed to take advantage of policy will have a steep learning curve. The expectation, anecdotally at least, is for a hopefully seamless transition from the old policy into the new, albeit with new forms and registration requirements.
But there are wider issues too. If this sparks another panic buying splurge, house prices might increase rapidly if supply is limited in particular areas. Furthermore, like before, this new policy does not assist first time buyers wanting to acquire what might be perfectly good existing property stock.
Indeed, the Covid situation has led to talk of first time buyers starting to shun the normal entry route of one bedroom flats and leapfrogging straight up to a “proper” house with garden space and a spare room for a home working office. Such stock will be much more important (attractive?) and developers might struggle to shift one-bedroom city centre flats and the prices of those, in particular, could be subject to sharp falls. Where is the incentive for developers to build the homes that non-first-time-buyers want?
One has to therefore question whether developers should be building typical “first time buyer homes” merely to take advantage of the policy (and let’s face it there’s been plenty of bad press about certain developers making a lot of money out of the first help to buy scheme) when other forms of housing are still required for growing families and indeed those downsizing? The relaxation of the planning policy, whilst welcome, must have an eye to the wider demographic requirements and not get tunnel vision on this issue.
A more ambitious and thought out help to buy scheme might address the need to fund more mainstream affordable housing generally for families moving into their second or third home as well as retirement villages and to assist in the churn of the existing housing stock.
By Richard Osborn and Robert Sprake, Real Estate and Property Development lawyers
