A new report carried out by home move company Reallymoving.com has speculated that the Help to Buy scheme could become a similar scandal to PPI.
The claim follows the report’s key findings that those using the Help to Buy scheme pay 8% more for a similar property than those that did not use the scheme.
The report, focused on 70,000 first time buyers (FTBs), found that those opting to avoid Help to Buy paid an average of £257,908 for a brand new property; in comparison, those using Help to Buy paid £277,968.
The report attributes this increase to buyers, using Help to Buy, willing to offer more for the property. In addition, they also found that developers demanded a higher price from those using Help to Buy.
Rob Houghton, CEO of reallymoving.com said: “The Help to Buy scheme has provided a leg up onto the housing ladder for many first time buyers but this data suggests that first time buyers may not be getting such a good deal after all. When they come to sell this could increase the risk that their home isn’t worth what they paid for it.”
The scheme requires buyers to raise their own initial deposit value of 5%, with the government offering a further 20% in the form of an equity loan.
Although many first time buyers would be incapable of acquiring a mortgage without the scheme, it has been speculated that buyers are opting to purchase more expensive property as the Help to Buy enables them to artificially afford the 25% deposit.
When Help to Buy recipients come to sell their property, they could also face inherited problems from the inflated prices paid for the initial purchase. As house prices depreciate, the property may struggle against equivalent properties or home owners face selling at a loss.
Additionally, the repayment of the equity loan could shackle people to the property as they may be unable to afford to move anywhere else. The initial loan can only be repaid in either 50% instalments or in its entirety.
When the average equity loan stands at £56,000 for new build property, the prospect of finding £28,000 is extremely daunting. With the subsequent 1.75% interest after five years and inflation plus 1% after that, it is easy to see how a FTB could struggle to find the money to repay the loan.
The government will claim that the Help to Buy scheme has been an unmitigated success with over 146,753 Help to buy ISAs and similar numbers for equity loans. Without this support, these FTBs would have been stuck in generation rent or reliant on the bank of mum and dad for the initial deposit.
However, the perception of success may be short lived if the people that took advantage of the scheme are unable to make the next step because the conditions of the equity loan make it overly difficult or unrealistic to repay.
With the Help to Buy scheme’s expected deadline extending to 2021, those considering using this governmental help, may need to consider the full implications that may inadvertently fetter them to their intended home.
Do you think that this report throws up legitimate concerns for FTBs in the future? Will the government need to consider equity loan repayments in the future? Has the scheme damaged the housing market or ensured the continued success of the housing market?
One Response
Absolutely right. New home prices are already inflated and the buyers would suffer a loss in a stagnant market even without the 8% premium. For example, someone who could raise a £300,000 mortgage might not be able to afford a two bedroom London conversion for £400,000, but can, with HtB buy a smaller flat (new build) for £500,000. The scheme is a subsidy to house builders and the government, and those who used the scheme, will pick up the tab.