2.5% deposit, £600,000 price cap: How UK's new home-buying scheme will work

The UK government is preparing to reintroduce its Help to Buy-style initiative, enabling first-time homebuyers to purchase new-build properties with a modest deposit and government support. According to Reuters, the new "Your First Home" scheme is anticipated to be announced in the October 28 Budget. The program aims to assist those struggling to meet the deposit requirement while incentivizing the construction of new homes and bolstering Britain's housing sector.

Under the scheme, eligible first-time buyers will be able to acquire a new-build property with a mere 2.5 percent deposit. The government will contribute an equity loan of up to 20 percent of the property's market value. The buyer would subsequently secure a mortgage covering 75 percent of the property's worth. The scheme will be applicable to eligible new-build properties priced at a maximum of £600,000.

The government-backed equity loan will remain interest-free for the first five years, although it is not a grant and must be repaid. The loan must be settled in full when the property is sold, within 25 years, or in accordance with the repayment of the buyer's primary mortgage, as detailed by the Ministry of Housing, Communities, and Local Government.

This new scheme draws inspiration from the previous Help to Buy model, which operated in England from 2013 to 2022 and facilitated home purchases for over a third of a million individuals. The prior program also utilized government equity loans to lessen the amount buyers needed to borrow through a conventional mortgage. The new program preserves this fundamental structure but reduces the initial buyer's deposit to 2.5 percent.

Eligibility for the scheme will be contingent upon a household income cap and local property-price caps to ensure assistance is directed towards those who need it most. The program will apply to eligible new-build homes from participating developers, who will also be expected to contribute towards the scheme's costs. The government is positioning the program as a dual-purpose measure, both promoting homeownership and intervening in the housing market.

By simplifying the process for first-time buyers to access new-build properties, the government hopes to stimulate demand for newly constructed homes.