But now, the private sector is looking for ways to support those with a small deposit, with a Help to Buy alternative, launched by mortgage lender Gen H, in partnership with housebuilder Persimmon.
This new offering is available to both first time buyers and home movers with a 5 per cent deposit, buying from one of over 130 of Persimmon’s new build sites across the country. These include developments in Rainham, Kent which is a 49-minute train journey into St Pancras, and Braintree in Essex, which gets you into Liverpool Street in just over an hour.
In a similar way to the government scheme, buyers receive a 15 per cent interest-free ‘boost’, alongside an 80 per cent LTV mortgage, provided by Gen H. On a home costing £400,000, you’d have a 5 per cent deposit of £20,000, get a 15 per cent interest-free boost of £60,000 and have an 80 per cent LTV mortgage with Gen H of £320,000 (subject to standard criteria & rates).
“Often the only way someone can buy a home is because they have capital from their parents. This product is about levelling the playing field,” says William Rice, CEO of Gen H, a non-banking mortgage lender.
How does it compare to Help To Buy?
On first inspection, this product looks extremely similar to the Help to Buy equity loan, but there are some key differences, aside from it only being available on Persimmon Homes. With the government scheme, the equity loan was interest-free for the first five years, after which an interest rate kicked in that was linked to the Consumer Price Index; with this product, the boost is interest-free for the lifetime of the mortgage, which can be up to 40 years.
Another departure is that, under Help To Buy, repayment of the equity loan during the interest-free period was indexed to how much the property had increased or decreased in value. With this new scheme, if you repay the boost, in part or as a whole, during the initial five-year period, you’ll repay at cost price; this is great news if your property increases in value, not-so-much if it goes down as you’ll pay out more than it’s worth.
After the initial five years, repaying the boost is linked to the change in your home’s value but, as the interest-free period extends over the lifetime of your mortgage, which could potentially be decades, it’s capped so you’ll never repay more than double the original value of the loan. If your interest-free boost was £20,000, the most you’d ever pay back, even after 40 years, is £40,000.
This product has also been designed so it’s much easier for customers to manage. As both the 15 per cent interest-free boost and 80 per cent mortgage are administered by Gen H, you only need to do one application, and customers can manage and make payments to both digitally, giving them a streamlined experience. In contrast, those using Help To Buy had to write to Homes England to make changes and pay a fee when their homes were valued. There are no additional management fees with this product, and no repayment charges or home valuation fees for the boost. Customers can also mortgage away from Gen H if they wish.
While the interest rate for this product is currently over six per cent, about 0.5-1 per cent higher than the high street rate for a 90 per cent mortgage, Rice flags that you need to bear in mind that this is on an 80 per cent mortgage and that the 15 per cent boost is interest-free. If you look at the interest rate across the entire borrowing of 95 per cent, the rate is more favourable.
“Sadly, there is an appetite for this type of product because home ownership is so unaffordable for first time buyers… It’s aimed at helping those that don’t have financial support from their families,” says Rice.
He flags that while customers might only have a five per cent deposit, the boost means that their affordability is against 80 per cent (rather than 95 per cent). “It’s about this borrowing uplift, as well as having a small deposit — the amount you are able to borrow is more.”
In terms of eligibility, the minimum income level is £18,000 for a single owner and £20,000 for joint owners. If buying as a couple, one of the owners must be over 21 and the other over 18; if a sole owner, they need to be over 21. The maximum age for sole owners at the end of the mortgage term is 75 and, for joint owners, the loan must be repaid by the eldest customer’s 85th birthday.
“Gen H’s eligibility is permissive,” says Rice. “We have good criteria for audiences with more complex circumstances. In addition to FTBs, this includes those who are self-employed, those with multiple income sources and foreign nationals on visas.” There’s no cap on the highest income but Gen H’s standard maximum loan size is up to £1 million. While there is the possibility of letting out a property further down the line, Consent To Let would need to be sought and there are limits on how long a property can be rented out for.
While this product is offered exclusively on Persimmon Homes for launch, and is being funded by the homebuilder, the plan is to roll it out to other developers, including those with more of a London presence, in the future. This is timely with Labour’s pledge to build 1.5 million homes over the course of the next five years. “The hope is that this product will provide the confidence homebuilders need that there is a sufficient audience to buy the new homes that they are building for the government,” says Rice. “The private sector is putting its money where its mouth is.”
Gen H also hopes to open the scheme up to other lenders who might be able to provide mortgages to people that it cannot currently accommodate. “Any mortgage lender who wants to work with us, we are happy to collaborate with. They might be able to lend to people that Gen H can’t… There is a huge problem still to solve and we want to help.”