Help to Buy equity loan schemes: England, London, Scotland and Wales
Last updated: 28 July 2017
At a glance
- Government backed equity loan schemes are available in England, Scotland and Wales under the Help to Buy (HTB) brand.
- Although there are variations between the schemes, the overall approach to supporting eligible buyers to purchase their newbuild home is the same.
- In the schemes in England outside Greater London and Wales, government funds provide an equity loan of up to 20% of the value of the property, repayable when the home is sold. Buyers contribute the remaining 80% through a minimum 5% deposit together with a mortgage to make up the remainder of the purchase price.
- In the London Help-to-Buy scheme, announced in Autumn Statement 2015, government funds can provide an equity loan of up to 40% of the value of the property, repayable when the home is sold. Buyers will contribute the remaining 60% through a minimum 5% deposit together with a mortgage to make up the remainder of the purchase.
- The London Help-to-Buy scheme launched on 1 February 2016 and more information on the scheme is available on the government's Help-to-Buy website.
- In the Scottish scheme, from 1 March 2016, called the Help-to-Buy (Scotland) Affordable Newbuild Scheme, government funds provide an equity loan of up to 15% of the value of the property, repayable when the home is sold. The new Scottish scheme operates a reducing maximum price cap.
- The schemes support higher loan to value (LTV) lending for new and existing buyers whose deposits are effectively boosted by the equity loans provided.
- The maximum property price caps are:
- England £600,000
- Wales £300,000
- Scotland £230,000 (2016-17); £200,000 (2017-18); £175,000 (2018-19)
- There are no income cap limits. The purchased home must be the only property in which the buyer has a legal interest and buyers must be UK residents.
- The schemes are time limited. In England (including Greater London) and in Wales, they will run until 2021. In Scotland, the extension of the scheme will run to 2019.
- The Scottish Government also provides equity loan schemes under its Low Cost
Initiative for First-time buyers (LIFT) programme. More information on LIFT schemes is available on our low cost home ownership overview page.
- There is no equivalent scheme in Northern Ireland, although the co-ownership scheme supports affordable home purchase through a form of equity sharing arrangement.
- On 29 September 2016, the Chancellor announced the end of the Help to Buy Mortgage Guarantee Scheme from 31 December 2016. Other aspects of Help to Buy including HTB Equity Loan and HTB ISA remain open for business and are unaffected by the announced closure of the mortgage guarantee element of the scheme. HTB Equity Loan in England is continuing to run until 2021.
We want to see a consistent approach maintained, as far as possible, across the schemes in terms of structure, operation and standard documentation.
Crucial for lenders’ participation is the requirement that the second charge equity loan cannot fall due until after the expiry of the first charge mortgage.
This ensures that lenders do not have to take account of how the equity loan will be repaid, when assessing the affordability of the main mortgage, and also avoids mortgage conduct regulation issues arising.
We want to see the timely development of exit strategies for the current schemes. We want governments to continue to engage in good time with the CML and lenders in planning for succession arrangements.
This will help ensure any successor schemes can attract sufficient lender participation, and that there is a smooth transition with no “cliff edges” which could cause market instability.
Why this is important for lenders
HTB equity loan schemes are flagship measures to support the newbuild market and low-deposit lending. The schemes are politically high profile.
Lender appetite for newbuild business can be affected by valuation issues and builder practices. Help to Buy Equity Loan (HTBEL) schemes require developers to sign formal participation agreements which include adhering to the Consumer Code of Conduct for builders. This provides a degree of comfort for lenders.
The dominance of HTBEL in the market means that some lenders might be approaching their own exposure limits for newbuild lending. There might be limited headroom remaining to support other newbuild activity including shared ownership, where government would like to see more lender activity to support the purchase of 135,000 new shared-ownership homes announced in the Autumn Statement 2015. There is potential for a misalignment of government expectations for more newbuild activity with limited lender appetite or capacity for it.
Overcoming this will need other lenders to increase market share, new firms to enter the market, and changes in business flows through broker channels.
The government’s Starter Homes scheme envisages that customers will be able to purchase a home under that scheme with the assistance of a Help-to-Buy Equity Loan. The CML is engaging with the Department for Communities and Local Government, which is developing the detail for Starter Homes, to raise awareness and understanding of the challenges for lenders and customers when schemes and initiatives are offered in combination.