Research from the HBF said that since the removal of the Help to Buy scheme, a “significant wall” has been placed between homeownership and much of the population.
It explained that at the end of 2023, the average new-build home came to £356,602. Therefore, with a 95% loan-to-value (LTV) mortgage, a household would need a mortgage of £336,087 and an income of £37,641 per person for a two-person household.
This means that an individual applicant in the 69th income percentile, which is “effectively pricing out an additional 25% of the population”, could have bought a property using Help to Buy.
The HBF is urging the government to consider a replacement equity loan scheme, which would combine aspects from different schemes like Help to Buy and the mortgage guarantee scheme.
The scheme would require first-time buyers to have a 5% deposit, which would be matched by a 15% equity loan from the government. This would include a developer fee from a participating developer, equal to around 1% of the sales price.
Your Mortgage Awards 2024/25: winners revealed
Sponsored by Your Mortgage Awards
The HBF said this would mean homebuyers could gain access to a “greater range of mortgage deals at far lower rates”, noting that 80% LTV deals are “priced significantly cheaper”.
The combination of the equity loan and lowering the LTV to 90% means that buyers are more likely to benefit as they fall below 4.5 times loan-to-income (LTI) ratios. Homebuyers will have access to more mortgage deals and more affordable monthly repayments.
The government will receive 15% of the value of the property when the equity loan is paid off, assuming that after three or five years, before interest is payable the homeowner remortgages and repays the equity loan.
“This is the typical experience with Help to Buy. Because the developer will not retain an equity stake, house price inflation benefits would be taken only by the homeowner and the Exchequer,” it said.
The HBF added that under previous schemes, the requisite 15% developer contribution was “far above what many homebuilders could reasonably afford, with the exception of large national developers”.
“HBF’s proposed scheme does not require any additional investment from government, but the 1% developer contribution ensures that smaller builders can also access the scheme,” it said.