What are the Pros and Cons of the Help to Buy Scheme?

The pros and cons of Help to Buy are worth understanding, even now the scheme has closed. The Help to Buy scheme, introduced by the government to assist first-time homebuyers in purchasing a property, has been a hot topic in the world of real estate. It closed to new applicants on the 31st October 2022, with any applicants needing to complete before 31st March 2023. But with many new homeowners still utilising the scheme, knowing the pros and cons is important. Furthermore, similar government initiatives are likely to arise in the future to promote homeownership, therefore it’s good to evaluate the pros and cons of the Help to Buy scheme to inform future efforts.

Pros of the Help to Buy scheme

1. Lower deposit requirements

One of the main attractions of the Help to Buy scheme was the reduced deposit requirement. Traditional mortgages typically require a 10-20% deposit, which can be a significant barrier for first-time buyers. Under the Help to Buy scheme, eligible buyers needed only provide a 5% deposit, making homeownership more accessible for many.

2. Government-backed equity loans

The Help to Buy scheme offered equity loans, where the government lends eligible buyers up to 20% (40% in London) of the property’s value. This loan is interest-free for the first five years, allowing homebuyers to save on interest payments during this period. The reduced loan amount also meant that buyers could access lower mortgage rates from lenders, as they now posed a lower risk.

3. Mortgage guarantees

Mortgage guarantees are another component of the Help to Buy scheme. The government guarantees a portion of the mortgage, enabling lenders to offer higher loan-to-value mortgages (up to 95%). This makes it easier for first-time buyers to secure a mortgage with a smaller deposit.

4. New-build properties

The Help to Buy scheme focused on newly-built homes, which can be advantageous for buyers seeking a modern, energy-efficient property. New homes often come with a warranty, protecting buyers from potential structural issues, and may also include incentives like upgraded fixtures or appliances.

5. Potential for capital growth

Buying a property is a long-term investment, and the Help to Buy scheme brought potential for significant capital growth over time. If the property market grows, the value of the property is likely to increase, allowing buyers to build equity and potentially make a profit when they eventually sell the property.

Cons of the Help to Buy scheme

1. Limited property choices

One major drawback of the Help to Buy scheme is that it primarily applied to new-build properties. This restricts the pool of available homes, as buyers couldn’t use the scheme to purchase older or pre-owned properties. Additionally, new-build homes are often more expensive per square foot, meaning buyers may not necessarily get the best value for their money.

2. Price cap restrictions

The Help to Buy scheme had price cap restrictions, which vary depending on the region. In some areas, the cap might have limited the choice of properties, making it difficult for buyers to find a suitable home within their budget. Each regional cap is available to see on the government’s website.

3. The risk of negative equity

Negative equity occurs when the value of a property falls below the outstanding mortgage balance. As the Help to Buy scheme involved a higher loan-to-value ratio, there is an increased risk of negative equity if property prices decline. This could create difficulties for homeowners who wish to sell or remortgage their property in the future. Homeowners can understand the value of their property by having an independent valuation carried out. This is a requirement under the Help to Buy scheme when the owner decides to re-mortgage or sell the property, but it can also be done voluntarily at any time.

Help to Buy negative equity is a particular worry for new-build buyers. New homes can carry a price premium that fades once the property is second-hand, so a flat or falling market can leave the resale value below what was paid. If that happens, the sale proceeds may not cover the mortgage and the equity loan together. That is one of the harder edges of the scheme to plan for, because it depends on the market rather than anything the buyer controls.

4. Long-term financial implications

Under the Help to Buy scheme, buyers are required to repay an equity loan of up to 20% of the property’s value after five years. While the Help to Buy equity loan is interest-free for the first five years, interest will be charged from year six onwards. This additional expense, coupled with the repayment of the equity loan, could put a strain on homeowners’ finances in the long run. Buyers should carefully consider the affordability of these future payments before committing to the scheme. To help understand what to do next, read more about the redemption process and options, which refers to paying back the equity loan.

A point that catches people out: the loan is a share of the property's value, not a fixed sum. Borrow 20% and you repay 20% of whatever the home is worth when you settle the loan, not 20% of the original price. If the value has risen, the amount you owe rises with it.

Why some people say Help to Buy is bad

Much of the criticism of the scheme comes down to a few themes. Some argue it pushed up new-build prices, because developers had a pool of buyers who could stretch further. Others point to the equity loan being tied to value, which means a rising market increases what you owe. And the new-build focus meant buyers often paid a premium that did not hold on resale.

None of that makes the scheme wrong for every buyer. It means the trade-offs need to be understood before committing, and that the resale and repayment position matters as much as the day-one deposit.

Is Help to Buy worth it?

The honest answer is that it depends on the buyer. For someone with a small deposit who plans to stay put for several years, the scheme did what it set out to do: it got them onto the ladder sooner than saving alone would have allowed. For someone likely to move within a few years, the repayment and the risk of negative equity weigh more heavily.

Before deciding, we recommend working out three things: the deposit and mortgage you can raise without the scheme, the monthly cost a lender would actually test you against, and what similar homes have sold for nearby rather than the developer's asking price. Those figures tell you whether the help is worth the terms attached to it.

So do the pros outweigh the cons with the Help to Buy scheme?

The Help to Buy scheme offered a range of benefits for first-time homebuyers, such as lower deposit requirements, government-backed equity loans, and mortgage guarantees. These advantages can make homeownership more accessible and affordable for many prospective buyers and may be useful in alternative government initiatives to get more people on the property ladder. However, the scheme also had its share of drawbacks, including limited property choices, price cap restrictions, and potential long-term financial implications.

If you opt for the scheme, you’ll need an independent valuation at the end of five years when you start paying back the loan. You can read more in our guide on how to navigate the sale of your Help to Buy home. First-time buyers weighing up the wider decision may also find our guide to buying your first home useful.

Frequently asked questions

What are the main pros and cons of Help to Buy?

The main pros were a 5% deposit, a government equity loan of up to 20% (40% in London) that was interest-free for five years, and access to higher loan-to-value mortgages. The main cons were a limited choice of new-build homes, price cap restrictions, interest from year six, and the risk of negative equity because the loan is tied to the property's value.

Can Help to Buy leave you in negative equity?

Yes. Because the scheme relied on a high loan-to-value position and new-build homes can carry a price premium, a flat or falling market can leave the property worth less than the mortgage and equity loan combined. That makes selling or remortgaging harder. An independent valuation shows where you stand.

Why do some people say Help to Buy is bad?

Critics argue it helped push up new-build prices, that the equity loan being tied to value means you repay more in a rising market, and that new-build premiums often did not hold on resale. These are genuine trade-offs rather than reasons the scheme suited nobody. They need weighing against the benefit of getting onto the ladder with a small deposit.

Is Help to Buy worth it?

It depends on your deposit, how long you plan to stay and how prices move. For a buyer with a small deposit staying several years, it often did the job. For someone likely to move soon, the repayment and negative equity risk weigh more. Work out your borrowing, monthly cost and local sold prices before deciding.

How is the Help to Buy loan repaid?

You repay a percentage of the property's value, not a fixed amount. Borrow 20% and you owe 20% of whatever the home is worth when you settle, whether by selling, remortgaging or paying it off. An independent RICS valuation sets that figure at the point of redemption.