Record year for Help to Buy equity loans, but repayment costs climb too

  • In the year to the end of June 2021, there were a record 60,634 homes bought using Help to Buy equity loans – taking it to a total of 339,347 since the scheme was launched in 2013.
  • The price of the average UK property rose over £31,000 in the year to June 2021, and because loan repayments are based on price rises, it hiked the cost of Help to Buy loans.
  • Meanwhile, June saw 10,989 properties bought with Help to Buy ISAs, a record since the scheme began. In total, they have been used to buy 435,798 homes.

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown: “Runaway house prices mean government schemes for homebuyers are more valuable than ever. But when it comes to the Help to Buy equity loan scheme, they’re more expensive than ever too.

“Government schemes have provided a vital leg up for buyers as prices climbed this past year, through Lifetime ISAs, Help to Buy ISAs and the Help to Buy equity loan scheme. However, anyone considering the Help to Buy equity loan scheme needs to be aware that rising prices could also make their loan eye-wateringly expensive further down the line.

“The 12 months to the end of June saw the highest number of help-to-buy loans on record. With house prices rising out of sight, property deposits rose out of reach, and the loans helped close the gap, so that buyers only had to find the first 5% of the deposit. But while rising prices made this scheme more popular, they also made it far more expensive, and people need to understand the costs involved.

“When the loan is eventually repaid to the government, the amount that needs to be paid back depends on the value of the house at that time. If you borrow 20% of the purchase price, you repay 20% of the value when you eventually remortgage, so when prices rise, so do your repayments.

“If you borrowed 20% from the government to buy the average property in June 2015, and then you repaid the loan in June 2020, you’d have had to pay back £7,581 more than you borrowed. The rising market in the past 12 months means that someone doing the same a year later would have had to repay £10,557 more than they borrowed – so the rising market cost them almost £3,000.

“If you’re working hard to build a deposit, Help to Buy isn’t your only option. If you’re aged 18-39, and you plan to buy your first property a year or more down the line, you could also consider saving at least some of the deposit in a Lifetime ISA. You can put £4,000 a year into a LISA and the government will immediately top it up by 25% – so you could get £1,000 a year from the government to help you onto the property ladder. And through the LISA, this never needs to be paid back.”

Other Help to Buy ISA statistics

  • The average bonus value is £1,095.
  • The average property bought through the scheme is £175,567 compared to an average first-time buyer house price of £ 222,712 and a national average house price of £265,668.
  • The average age of a first-time buyer in the scheme is 28 compared to an overall first-time buyer average age of 30.