Help to Buy Cap May be Hindering First-Time Buyers
In an attempt to help, the new Help to Buy cap may render properties unaffordable for many first-time buyers.
The Help to Buy Scheme
The government-funded Help to Buy Scheme was launched in 2013 in an attempt to aid first-time buyers and encourage them to get onto the property ladder. The scheme offers an equity loan by which the government lends first-time buyers money to buy a new-build. Since its origins in 2013, over 200,000 homes have been purchased as part of the scheme. The purchase price can be up to £600,000 and buyers need only a 5% deposit to secure a mortgage. However, now a new price cap is being introduced.
Long Term Plan
As part of their long term plan, the government will be changing some of the policies of the Help to Buy scheme in order to help first-time buyers enter the property market. From April 2021, a new price cap will be introduced. Although the 5% deposit will be the same, the new price cap may mean that people will be blocked from purchasing a property. This is more pertinent in some areas than others. According to analysis from money.co.uk, 13 cities across the UK are going to be more severely impacted than others, due to their already high housing prices within their region.
“London has a reputation of being unaffordable for first-time buyers,” explains Dan Kettle of Octagon Capital. “Although surprisingly the average new build across the whole of London is just over £555,000; below the £600,000 price cap.”
Yet, there are some boroughs which prove more unaffordable than others. In fact, eight of London’s boroughs have an average new-build cost of more than the £600,000 regional price cap. These were Kensington and Chelsea, City of London, Hackney, Hammersmith and Fulham, Merton, Camden, Wandsworth and the City of Westminster. The worst of these was Kensington, with a shocking £584,000 difference between the average new-build and the regional price cap.
The Worst Affected Cities
These problems are not just specific to London’s capital. Across the worst-affected cities in the UK, the discrepancy between average price for a new-build and regional price cap ranges from £26,068 to a staggering £198,751. With many opting for fresh air, Exeter is one of the cities experiencing a surge in demand for housing. However, new builds may be out of reach for many. In Exeter, the average price of a new build home is £77,931 higher than the regional Help to Buy price cap of £349,000. Thus, the possibility of purchasing a property may not be an achievable goal for many.
Another recent trend is a preference for commuter belt cities. Leafy cities such as Cambridge are becoming increasingly popular. Yet, this university city is the worst affected by the new regional price cap. With an average cost of a new build home at £606,151, nearly £200,000 more than the regional price cap, it bears questioning which first-time buyers are actually able to afford these prices.