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

The UK government is set to revive its Help to Buy-style scheme, allowing eligible first-time buyers to purchase new-build homes with a deposit of just 2.5 percent and a government-backed equity loan of up to 20 percent of the property's value.According to Reuters, the new “Your First Home” scheme is expected to be confirmed in the October 28 Budget. The programme is aimed at helping first-time buyers overcome the deposit barrier while also supporting demand for new-build homes and Britain's housing construction sector.How the new scheme will workUnder the scheme, eligible first-time buyers will be able to purchase a new-build property with a 2.5 percent deposit, while the government will provide an equity loan of up to 20 percent of the property's market value.The buyer would then take a mortgage covering 75 percent of the property's value. The scheme will apply to eligible new-build properties worth up to £600,000.The government-backed equity loan will be interest-free for the first five years. However, it is not a grant and will have to be repaid.The loan must be repaid in full when the property is sold, within 25 years, or in line with repayment of the buyer's main mortgage, according to details released by the ministry of Housing, Communities and Local Government.What changes from Help to BuyThe new scheme is a revival of the Help to Buy model, which operated in England from 2013 to 2022 and helped more than a third of a million people purchase new-build homes.The previous scheme also used government equity loans to reduce the amount buyers needed to borrow through a conventional mortgage. The new programme retains that basic structure but sets the initial buyer deposit at 2.5 percent.Who will qualifyThe scheme will include a household income cap and local property-price caps to ensure support is targeted at buyers considered to need assistance.The programme will apply to eligible new-build homes from participating developers. Housing developers will also be expected to make a contribution when joining the scheme to help cover its costs.The government is positioning the programme as both a homeownership measure and a housing-market intervention. By making it easier for first-time buyers to access new-build properties, it hopes to increase demand for newly constructed homes.Further details on the scheme's implementation and costs are expected in the October 28 Budget.Ready to Make a Smarter Property Decision? Build Your Legacy with TOI Homes.