During the (virtual) Conservative party conference, Boris Johnson announced his intention to create “Generation Buy”. It looks as though he may introduce two separate schemes to make this happen. The details of one of these schemes are, currently, very hazy. The details of Help to Buy 2.0 are, however, much clearer.
The “Generation Buy” scheme
For completeness, here is what is known about the “Generation Buy” scheme. The PM intends to make it possible for first-time buyers to buy houses with just a 5% deposit. This could be a reference to the standard help to buy scheme.
The PM did, however, say just “houses”, rather than “new-build houses”. This could just have been an oversight. If so, however, it would raise the question of why he didn’t just openly refer to Help to Buy 2.0.
The basics of Help to Buy 2.0
The general idea of Help to Buy 2.0 is much the same as the general idea of Help to Buy 1.0. If buyers can get together a 5% deposit and a 75% mortgage, the government will bridge the gap by providing an “equity loan” for the remaining 20% of the purchase price. This is interest-free for five years. Then the buyer can either buy out the government or start paying interest.
Despite the name, the “equity loan”, isn’t a traditional loan. Effectively, it involves the government buying a stake in the property. The buyer, therefore, does not necessarily repay the amount borrowed. They repay the fair market value for the percentage stake in their property. This could be more, but it also could be less.
As previously mentioned, Help to Buy 2.0, like its predecessor, can only be used on new-build properties. This may, or may not, differentiate it from the “Generation Buy” scheme.
The differences between Help to Buy 2.0 and Help to Buy 1.0
There are only a couple of major differences between Help to Buy 2.0 and Help to Buy 1.0. The first is that it will only be available to first-time buyers. The second is that it will be implemented on a regional basis with different price caps in different areas.
These price differences can be very significant. For example, as currently stands, the price cap for April 2021 to March 2023 ranges from £186,100 in the North East to £600,000 in London. It’s also worth noting that in London buyers can get an equity loan for up to 40% of the property value.
The availability of new-build property
Another potential difference between Help to Buy 2.0 and Help to Buy 1.0 is that Help to Buy 2.0 is being implemented in a peri-COVID19 and peri-Brexit environment. COVID19 has already caused a slowdown in construction. This raises a lot of questions about the availability of new-build housing in the immediate future.
Even if COVID19 is brought under control by early 2021, there is still the impact of Brexit to consider. This has the potential to disrupt both the availability of workers and the supply of materials. Depending on post-Brexit trading agreements, it could also increase the cost of materials. This could then impact on the feasibility of developments.
If the government sticks to its policy of only making Help to Buy 2.0 available on new-build property, then its real-world usefulness will depend on the availability of new-build property.
The first-time buyer issue
Although the plight of first-time buyers is real, so is the plight of people wanting to move out of starter flats and into family homes. Help to Buy 2.0 has absolutely nothing to offer them.
Your property may be repossessed if you do not keep up repayments on your mortgage.