A new report by the National Audit Office (NAO) shows that many of people on the Help to Buy scheme could have afforded a house regardless – now some of those buyers are in negative equity, and in a situation far worse than if they’d gone it alone.
Firstly, what is the Help to Buy scheme?
Help to Buy was launched in April 2013 by former chancellor George Osborne as a way of getting more buyers onto the property ladder. It’s open to both first-time buyers (who it was largely aimed at) and home-movers too, but is only ever available for buyers of new properties. Essentially it involves:
- The buyer has to have at least 5% of the sale price of a new-build flat or house as a deposit.
- The government lends the buyer up to 20%, or 40% if you live in London, of the sale price. This loan is interest-free for five years. Afterthe interest-free period, buyers are charged 1.75% on the outstanding amount as interest. This fee increases each year by Retail Price Index plus 1%.
- The buyer borrows the rest (up to 75%, or 60% if you live in London) from a mortgage lender, on a repayment basis.
- Buyers need to repay the equity loan in full after 25 years, when the mortgage term finishes or when you sellyour home – whichever happens first.
The scheme is currently due to end in 2023, bringing an end to a flagship loan programme that currently divides financial critics – some feeling it boosted, and others that it harmed, the UK property market.
It’s now been used to support more than 200,000 purchases. It was introduced by the government with the aim to improve on a falling in property sales, following the financial crash in late 2008, and the tightening of regulations over the availability of high loan‑to‑value and high loan-to-income mortgages that followed on from this. Michelle Neville, Sales Director at Clever Mortgages tells us: “At Clever Mortgages we fully understand the needs and drivers for first-time buyers. We help people day-in-day-out get their first mortgage secured, and we know from speaking to our customers how tricky it can be to get on the property ladder. But sometimes customers are surprised that getting a mortgage can in fact be easier than they first think, and with our guidance they can find ways of borrowing more, even with less deposit. We work with a trusted range of lenders, and all have their specialisms for differing needs.”
So, what are the criticisms of the Help to Buy scheme?
The new report suggests that some buyers using the scheme risk finding themselves in negative equity. The National Audit Office also highlighted figures showing that many people using the government’s Help to Buy scheme could have purchased their properties without it.
Perhaps surprisingly, the scheme isn’t means tested. Around one in 25 home buyers using the scheme had household incomes of over £100,000, 10% of buyers had household incomes of over £80,000, or over £90,000 in London, the National Audit Office (NAO) said, and so could have afforded to buy their own home themselves, even if it wasn’t in their ideal location.
The Help to Buy scheme can be a useful aid for many people, but it’s not always the most suitable option. If you’re a first time buyer considering the Help to Buy scheme, speak to us first to see if it really is the most suitable option for you’.
Help to Buy and the property market
The Department’s independent evaluations of the Help to Buy scheme show it has increased home ownership and housing supply – and has therefore achieved that goal, or at least in the short-term.
Housing firm Persimmon, for example, is the biggest beneficiary, with almost 15% of the sales made under the Help to Buy Scheme. Redrow made up 3.7% of sales, Bellway accounted for 6.7%, Taylor Wimpey made up 11.9%, and Barratt made up 13.3% %, according to the NAO’s analysis.
The report states that the government will aim to wean the property market off the scheme over the coming years, whilst still ensuring that developers continue to build new properties at the rates they are doing at the moment.
I’ve bought a house with Help to Buy – what next?
If you’re concerned about the findings from the report, and aren’t sure when or how you can end your commitment to the scheme, or whether you’re in negative equity, now’s the time to seek advice.
- Now’s the time to look into your situation – waste no time in gathering your documents, and setting aside some time to review them to find out exactly where you stand.
- Crucially, find out whether you’re in negative equity. Negative equity means that your house value is less than what you owe on it – so you’ll need to know what your house is worth now, and what your current mortgage balance is.
- Find out the terms you had when you took out the scheme – there’ll most likely be a set amount of time you have to pay the loan off over.
We can help
Clever Mortgages help first time buyers every day to take their first step on the property ladder. If you’re moving house and want to speak to one of our expert brokers about next steps, get in touch today.
Michelle Neville says, “Do get in touch, our brokers are experts in finding the right lender whatever the situation. We can offer advice to you if you’re on the Help to Buy scheme and aren’t sure what your next move should be – or if you’re a first-time buyer who’s exploring your options.”