Just how helpful is "Help to Buy"?
The scheme can, in the right circumstances, be very helpful to First Time Buyers, but be sure you understand what you are getting in to.
Help to Buy was introduced in 2013 in two forms, although today only the equity loan scheme is available, and that will come to an end for new applications on March 31st this year in England.
The following day, April the first will see the launch of a different version of Help to Buy which will be restricted to first time buyers only. Maximum property prices will vary around the country but the Help to Buy loan of 20% (40% in London) will still be available.
But how helpful is the scheme to first time buyers looking to get onto the property ladder?
Well. It means starting property ownership with a brand new home, maybe a fully fitted kitchen and carpets / flooring provided so that is obviously an attraction. Some builders also provide other incentives.
Of course, even though the current stamp duty holiday is due to end on March 31st this year, first time buyers currently pay no stamp duty anyway up to a price of £300,000 and that is due to continue – and it doesn’t matter whether the property is new or existing.
It can also mean a bigger and better property (remember the 20% government loan to add to your own 5% deposit) with a lower interest rate due to the mortgage not exceeding 75% of the price and a more affordable monthly payment for you.
Now wind the clock forward several years. Two incomes are often one income plus Child Benefit and a second child is planned. Schools were not a priority when the property was purchased but now they are and it is time to move to a different area. One income plus two children as opposed to two incomes and no children does not help the lender’s affordability calculator. The amount that can be borrowed is often less than when the first home was purchased. Add to that the fact that when a property is sold, the Help to Buy loan has to be repaid – not 20% of the original purchase price, but 20% of the current sale price. The deposit for the new home will be seriously reduced.
The result is often that moving house is a backwards step to a cheaper (and probably smaller) property just when people are looking for more room. It can all end in tears.
Peritum Mortgages help all sorts of people with all types of mortgages and always ensure that their clients are aware of what they are getting into. More importantly, they make sure that their clients know how they can get out of their mortgage when the time comes. Peritum don't do surprises, instead they concentrate on explaining their recommendations in full and in writing.
Government sponsored schemes always have a sting in the tail. Shared Ownership and Shared Equity Schemes have the same sting as Help to Buy and clients have a right to expect that the advice they receive will be comprehensive and correct. These schemes all have their place (and they certainly help the building industry) but they do need to be explained properly.
The Chancellor’s Budget is set for March 3rd and that could result in a number of fiscal changes affecting both homeowners tenants and landlords.
Contact us now on 0333 433 0246 if you feel you might need some guidance.