The government has unveiled a new equity loan scheme for first-time buyers, allowing them to purchase a new-build home with a deposit of just 2.5%. Under Your First Home, buyers will combine the deposit with a government-backed equity loan, which could cover up to 20% of the property's value. The scheme will only apply to new-build homes sold by participating developers.
The government announced the initiative on Saturday, with the chancellor expected to confirm full details at next month's Budget. Ministers hope the scheme will tackle one of the biggest barriers facing first-time buyers: raising a deposit. At the same time, the government wants to stimulate demand for new homes and support housebuilding. However, the announcement has already raised questions, with critics fearing another demand-side intervention could push up new-build prices.
How Your First Home will work
The government says the equity loan will initially be interest-free. Ministers argue this could save buyers hundreds of pounds each month compared with taking out a 95% mortgage. The government also plans to introduce household income limits and local property price caps, with the Chancellor set to reveal those thresholds at the Budget. Developers that join the scheme will also have to contribute towards its cost.
The structure inevitably draws comparisons with Help to Buy, which also used government equity loans to support new-build purchases. However, ministers have yet to reveal several important details, including the interest-free period, subsequent charges, price caps and implementation timetable.
'Private sector needs to be firing'
Lucian Cook, head of residential research at Savills, said the government needs a stronger private housebuilding market. He said: "However much it wants to increase the delivery of council houses, the government needs the private sector to be firing to see the benefit from the planning reforms it has already introduced. Without some kind of intervention, it risked permanently losing capacity in the housebuilding sector."
Cook also argued that current market conditions could work in the government's favour. "This announcement has the added advantage of coming at a time when house prices are relatively depressed," he said. "That means the government should enjoy a decent financial return on its investment, on the basis we see interest rates fall over the medium term."
Warning over new-build prices
However, reallymoving founder and CEO Rob Houghton warned about the potential impact on new-build prices. He said: "There is a risk, however, that boosting the buying power of first time buyers and channelling it into just one part of the housing market could artificially inflate prices."
Houghton pointed to research conducted by reallymoving in 2019, which found first-time buyers using Help to Buy paid 10.3% more for new-build properties than those buying new homes without the scheme. He added: "First time buyers should compare prices carefully with homes, new and resale, outside the scheme to ensure they are getting good value for money."
'Why should buyers be limited to new builds?'
Buying agent Nina Harrison, of Haringtons UK, also questioned the decision to restrict support to new-build homes. She said: "Anything that genuinely helps young people onto the property ladder is welcome, but the devil will be in the detail. I'm not convinced another Help to Buy scheme is necessarily the answer. Why should buyers be limited to new builds anyway? Why not a small house, period conversion or older flat?"
Harrison also raised concerns about what happens when buyers eventually want to sell. "Today's subsidised new build becomes tomorrow's second-hand flat without Help to Buy 2.0 behind it," she said. "Will it hold its value, or could buyers find themselves unable to move onto the next rung because it's worth less than they bought it for?"
Demand versus supply
The Centre for Policy Studies (CPS) was more critical of the policy. Ben Hopkinson, its head of housing and infrastructure, said: "Like 'Help to Buy' before it, the 'Your First Home' scheme will subsidise demand for housing while doing little to address the underlying issues driving Britain's housing crisis." Instead, Hopkinson called for action on stamp duty and the costs and regulations affecting development.
Meanwhile, NHBC chief executive Paul Turner welcomed the support for first-time buyers, but said ministers must also tackle housing supply. He said: "There is no one single solution to the housing challenge. Supply must also be addressed through accelerated planning reform and the easing of unnecessary regulatory burdens. What's more it's vital to keep focus on maintaining quality in the construction of new homes."
Emma Toms, chief executive of the New Homes Quality Board, also focused on standards. She said: "Support to help people buy homes is welcome, but it is critical that all new homes are built to a high standard."
London test
Paul Rickard, chief executive at Pocket, said the 2.5% deposit could make the scheme more accessible than Help to Buy. However, he said local property price caps would prove particularly important in London. He said: "The scheme is rightly targeted to those that need it most and we need to ensure the links to local property prices mean this works in the unique London market where home ownership has been most challenged and where the demand for homes is highest."
The government will reveal further details of Your First Home at next month's Budget, including its cost and the timetable for launching the scheme.
