Help to Buy was supposed to be a small beacon of hope for the younger generation that wanted to get into the housing market. It boasted an easier way to get involved with a 5% deposit (rather than the traditional 10%) and a 40% loan from the government to reduce borrowing.
Was it always too good to be true?
The idea behind Help to buy was a good idea, dare I say a noble one… But young people getting into bed with the Conservative government… this element of it seems too good to be true. Yes, you would get 40% of help, but there is a caveat, for five years the loan is interest free, once this period passes: you will be paying interest on the loan to the government, your mortgage and the interest on your mortgage. So maybe it wasn’t all it had cracked up to be. There were also hidden fees within the Help to Buy setup, as there was an extra 5% of fees to pay in conveyance and administration, meaning that you lost 5% of equity to one time costs.
So what happened next?
In June, the Independent stated that the scheme had actually pushed up the house prices. A study of the Help to Buy loan showed that the deal supported homeowners to buy more properties; only 37% of the buyers who used the scheme actually needed it. This scheme benefited property developers and existing homeowners, maybe that was the plan?
What about now?
According to the Sun, thousands of first-time homeowners that put down a 5% deposit are at risk of owing more money than their home is worth due to falling house prices. Many of these homeowners used the Help to Buy scheme to get into the housing market, and will now have to navigate both possible negative equity and repaying the 40% loan. This leaves many homeowners momentarily stuck, as they will struggle to sell their homes (due to the loses incurred). However, because property prices tend to ebb and flow, this bad news may be temporary. It’s possible that they will soon be on the rise again, averting this crisis.
Martin Stewart, a mortgage broker and Director of The Money Group advises:
“Some lenders will allow you to book a rate 6 months in advance so if you are worried then taking action sooner rather than later is a good idea. Consider a longer term fixed rate to remove future uncertainty. Look to pay off some capital to improve your loan to value and get a better rate.”
Do you still think Help to Buy is a good idea? Get in touch and tell us what you think.