The government will unveil a fresh scheme to help people on to the housing ladder next month but a debate is already raging over whether it is first-time buyers or housebuilders who will be the biggest winners.
At the weekend, Andy Burnham announced plans for Your First Home, which aims to give a helping hand to first-time buyers who do not have the luxury of being able to call on the “bank of mum and dadâ€.
Only a few details have emerged, but the news was enough to send the share prices of many UK housebuilders surging on Monday. Persimmon closed 14.7% higher, while Barratt Redrow added 11.7%, Taylor Wimpey 11.5%, Crest Nicholson 11% and Vistry 10.7%.
What do we know so far?
While it has a different name, it is not unfair to say that Your First Home appears to be an updated version of the Conservatives' flagship help-to-buy scheme, which ran for a decade.
Like that initiative, YFH applies to England only and is just for prospective first-time buyers looking to buy a new-build flat or house.
While there were separate help-to-buy programmes for Scotland and Wales, it is not clear yet whether the devolved governments will do their own versions of YFH.
Those taking part in the new scheme will be offered a government-backed equity loan worth 20% of the purchase price. Meanwhile, the minimum deposit the buyer will have to put down will be just 2.5%. That means the buyer will only need to take out a standard mortgage for 77.5% of the property's value.
Because the equity loan part will initially be interest-free, the government says participants “could save hundreds of pounds per month†compared with the standard 95% mortgage popular with many first-time buyers.
The 2.5% deposit cap eliminates one of the biggest challenges facing would-be homeowners, who can find it hard to save up after covering their costs for rent, household bills and in some cases childcare.
What's the catch?
There's a lot we do not know yet about how it will work, who will be eligible and who will not.
The government has said there will be measures to ensure support “is targeted at those who need it†and to avoid YFH being exploited by those who can already afford a home.
A household income cap will be introduced to exclude those on bigger salaries from taking part. There will also reportedly be a deposit cap to restrict how much an applicant could put down upfront and local property price caps limiting how much people can spend on their first home, depending on where they live.
There is no information yet about these caps, which will be the make-or-break factors for many people.
It is also not known how the government-backed equity loan will work, where the money will come from and, crucially, how long it will be interest-free for and what happens after that. When a buyer does have to start paying interest, will it be fixed or will it go up? Can they pay off this loan early, and what happens if they want to move house or get into financial difficulty?
What is known is that this loan will have to be repaid, perhaps when the home is sold or the mortgage is paid off.
In addition, it is not known what the timescales are for when YFH will go live. The government says further details will be announced in the budget on 28 October, with the scheme open for registration by the end of 2026.
How does the maths work in practice?
The average asking price for a typical first-time buyer home is £225,199, according to the property website Rightmove. A 5% deposit on a property of that value would be £11,260. But under the new scheme, the buyer would only need to put down £5,630 (2.5%).
They would be able to get a government equity loan of £45,040 (20% of the purchase price) and would need to take out a mortgage for the remaining £174,529.
Nicholas Mendes, of the broker John Charcol, says: “Because the equity loan covers 20%, the mortgage itself sits at 77.5% loan-to-value, which gives buyers access to lower rates than they would typically see on a 95% mortgage.â€
How does this compare with help to buy?
There were various versions of help to buy over the years, and it ended in March 2023. The final version had a lot of similarities to what we know so far about YFH: it offered an equity loan, was for newly built properties, and also had price caps on what you could buy.
With help to buy, the equity loan on offer was between 5% and 20% of the purchase price. However, that rose to up to 40% in London, so the new scheme appears less generous for those in the capital.
On the flipside, with help to buy, buyers needed to stump up a deposit of at least 5%, twice that of the new scheme.
Help to buy had regional property price caps – in London it could be used to buy a home costing up to £600,000 – but did not have a maximum household income.
With the old scheme, the equity loan was interest-free for the first five years. After that, what you paid went up each year by the consumer prices index inflation measure plus 2%. The ongoing row over soaring student loan debts means the government will be under a lot of pressure to be very clear about how the equity loan will work in terms of interest.
Ministers will also be acutely aware that help to buy was very controversial: while it was credited with helping 328,000 first-time buyers on to the housing ladder and a recent government review found it delivered “very high value for moneyâ€, it was accused of pushing up property prices and boosting housebuilders' profits.
Developers will be expected to make a “contribution†to the new scheme when signing up, to help cover costs.
