The government launched its flagship home ownership scheme in 2013. The “Help to Buy” schemes include Help to Buy Shared Ownership and Help to Buy Equity Loans to help hard-working people take steps to buy their own house.
The Help to Buy ISA pays first-time buyers a government bonus. For example, if a first time buyer saves £200 a month, then the government will add £50, up to a maximum of £3,000, boosting the ISA savings of £12,000 to £15,000.
Since the scheme’s launch, £8.27 billion has been lent in Help to Buy loans and over 150,000 properties have been bought.
Help-to-buy can be a good option if a person is keen to buy a new-build property from one of the house builders registered with the HCA (Homes and Communities Agency). In order to complete the purchase, the government will provide a 20% equity loan (40% in London).
Unlike the government bonuses paid into Help to Buy and Lifetime ISAs (which can be used to save up a deposit for property purchase), the Help to Buy Equity Loan is not free money. While there is no interest to pay on the loan in the first five years, you do have to pay a monthly management fee of £1. And after five years, interest does start to be charged.
In addition, with the Equity Loan, if the house value goes up so does the amount of money that you have to pay back (either when you sell the property or decide to make a voluntary repayment).
Furthermore, though 29 lenders currently accept Help to Buy loan applications to buy a home, the picture looks very different for those whose initial deals are up and need to remortgage to avoid slipping onto higher rates.
Help to Buy homeowners hoping to remortgage with some or all of their government equity loan still in place can only choose from a restricted pool of lenders – meaning they could miss out on the cheapest rates.
In a recent Financial Times article, only eight out of 25 lenders said they would offer remortgages to new customers who had yet to pay off their government loans.
One reason for this is that the process of remortgaging a Help to Buy property is more time-consuming and administratively complex because of the regulator’s rules about valuations and the amount of paperwork required.
Moreover, with current residential tax policies and the lack of a defined plan for a post-Brexit UK contributing to economic uncertainty, it appears that only those who have to move are doing so. Therefore, falling house prices and lack of property sales could also effect Help to Buy owners. Existing owners may now find they are in negative equity when it comes to re-mortgaging their homes, with serious repercussions.
First time buyers should therefore exercise caution when considering whether to utilise the Help to Buy Schemes, and consider all other options before signing on the dotted line.
Our Residential Conveyancing Department has a wide experience in all legal and practical aspects of your house move, making use of the latest technology to offer an efficient service that is responsive to your individual needs. Contact Tarsam Sangha or Preeti Lekhi at Seymours Solicitors on firstname.lastname@example.org, 01926 350031