A welcome stimulus
The Government's proposed Your First Home (YFH) scheme has been welcomed by many across the housebuilding sector, which has been calling for a meaningful demand-side stimulus since the Help to Buy programme ended four years ago.
Against a backdrop of subdued demand, lower sales volumes, continued cost of living pressures and affordability challenges, any initiative designed to support first-time buyers is to be viewed positively. The initial reaction from the market, reflected in housebuilder share prices, reflects that positivity.
What is proposed?
At first glance, the proposal appears to address some of the key barriers facing aspiring homeowners. A minimum 2.5% deposit requirement, combined with a 20% Government equity loan that is initially interest free, could help unlock home ownership for many buyers struggling to save larger deposits or meet mortgage affordability tests. In turn, greater activity at the entry level of the market can stimulate wider housing transactions, helping more households move up the property ladder, supporting overall housing delivery.
The Help to Buy precedent
The success of Help to Buy demonstrates why the industry has long sought a replacement. Between April 2013 and May 2023, 387,195 homes were purchased using the Help to Buy Equity Loan scheme, with 328,346 of those purchases made by first-time buyers, representing approximately 85% of all transactions. The scheme supported £109.2 billion of housing market transactions, underpinned by £24.7 billion of Government equity loans. These are significant figures and highlight the role that targeted demand-side intervention can play in supporting both home ownership and housing delivery. [gov.uk]
The detail matters, most of all in London and South East
However, the true impact of YFH will depend on the detail. Factors such as property value thresholds, household income limits, and the duration of any interest-free period on the Government's equity stake will all be critical in determining who benefits and to what extent.
These details will be particularly important in London and the South East, where affordability pressures remain most acute. Following a comparison of key terms, it seems YFH is unlikely to replicate the previous successes of Help to Buy.
| Team | Your First Home (as announced) | Help to Buy 2013–21 | Help to Buy 2021–23 |
| Eligible buyers |
First-time buyers, England | Any buyer (82% first-time buyers) |
First-time buyers only |
| Minimum Deposit | 2.5% | 5% | 5% |
| Equity loan |
Up to 20% | Up to 20% (40% London from Feb 2016) |
Up to 20% (40% London from Feb 2016) |
| Mortgage required | 75% (55% London) | 75% (55% London) |
75% (55% London) |
| Price Cap | Local caps, to be confirmed | £600,000 nationally | Regional, £186,100 to £600,000 |
| Income cap |
Yes, to be confirmed | None | None |
| Interest-free period | Initial period, length to be confirmed |
5 Years | 5 Years |
| Developer contribution |
Required, to be confirmed | None | None |
London used Help to Buy far less than its size would suggest, even after the London loan was raised to 40% in 2016. As announced, YFH offers 20% everywhere, so a London buyer would need a 77.5% mortgage, rather than 55%.
The scheme will also operate in a far more challenging economic environment than its predecessor, where higher interest rates will continue to challenge affordability even on a reduced total mortgage requirement. The cliff edge at the end of any interest free period will therefore also be more acute.
It therefore appears the new scheme will be more targeted in its approach, presenting the potential for some stark differences in the potential benefit across regions.
Impact on Development Viability
Crucially, YFH does little to address the viability pressures currently facing developers. While it may increase a pool of potential buyers, it does not tackle the growing delta between development costs and achievable sales values. Government will also be keen to design the scheme in a way that stimulates demand without triggering significant house price inflation. As a result, the fundamental imbalance between revenues and costs within development appraisals will remain. That challenge will continue to affect the viability and deliverability of many schemes, particularly more dense urban regeneration schemes, regardless of any increase in buyer demand.
Conclusion
Overall, Your First Home is undoubtedly a positive step and an encouraging signal that Government recognises the challenges facing first-time buyers and the wider housing market. However, in isolation it is unlikely to deliver the scale of impact and benefit of Help to Buy and there will be regional winners and losers.
It will also do little, to truly unlock housing delivery on its own, demand-side measures must be accompanied by further action to address the development viability challenges that continue to constrain the supply of new homes.
We look forward to seeing the further detail in due course, only then will we be able to truly assess the likely impact and the locations and developments most likely to benefit.
