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Government boosts Help to Buy scheme by £10bn

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Government boosts Help to Buy scheme by £10bn

The government has announced new funding of £10bn for its Help to Buy Equity Loan scheme.

It is investing the money ‘due to the popularity of the scheme across the country’ and estimated the funding could help around 135,000 more people to buy homes by 2021.

More than 130,000 completions have already taken place under the Equity Loan scheme, which helps people buy a new build home with only a 5% deposit.

How does it work?

The government provides an equity loan of up to 20% of the property’s value, which is repaid when the home is sold, or after 25 years, whichever comes first. No interest or repayments are due during the first five years of the loan.

The property must be a new build home, up to the value of £600,000.

The homebuyer also contributes 5% of the property’s value, meaning they can effectively get a more competitive mortgage normally reserved for buyers with 25% upfront.

They are still subject to the normal affordability assessments undertaken by mortgage lenders, so they need to prove they can afford the monthly repayments.

More supply needed

But many have argued that the extra funding is propping up prices without tackling the biggest housing issue – the chronic lack of supply.

Sam Bowman, executive director of the Adam Smith Institute, criticised the move. He said: “Reviving Help to Buy is like throwing petrol onto a bonfire. The property market is totally dysfunctional because supply is so tightly constrained by planning rules, and adding more demand without improving the supply of houses is just going to raise house prices and make homes more unaffordable for people who don’t qualify for the Help to Buy subsidy. 

“To improve the housing market you need to change the rules of the game, so that damaged parts of the green belt can be built on, so we can have more dense and efficient development of existing urban areas,  and so that locals benefit from new developments near them. Reviving Help to Buy is an astonishingly ill-judged move that may prove economically and politically disastrous for the government.”

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