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Housing market reliant on Help to Buy

Fears are growing that the housing market has become too reliant on Help to Buy as research shows the scheme has funded up to 97 per cent of new build sales in some regions.

Through the government’s Help to Buy equity loan, buyers can borrow 20 per cent of the cost of a new build property from the government with no loan fees for the first five years of owning the home.

This means buyers only need a 5 per cent cash deposit and a 75 per cent mortgage to make up the rest. In London the government loan even amounts to 40 per cent.

The initiative has helped thousands of borrowers take their first steps onto the property ladder with more than 200,000 properties being bought via the scheme since it launched on April 1, 2013, according to data from the government.

Research from Project Etopia, a builder of modular homes, showed the scheme is responsible for up to 97 per cent of new build sales in areas such as Northampton.

On top of this more than half of all new-build property purchases in England were funded through the Help to Buy equity loan scheme last year with reliance on the scheme even more acute in towns and cities.

Among the 105 locations in the study, 20,179 (54.6 per cent) of the 36,950 new build sales in these areas were funded by the scheme.

Help to Buy hot spots included Burnley, Derby and Warrington, where more than 90 per cent of new builds were purchased with the scheme.

Even in places where the scheme was used the least — Cambridge, Portsmouth and Norwich — still about one in five new builds were purchased with government help.

According to Project Etopia, the ending of the government-backed scheme in 2023 means the nationwide housing market would be dealt a serious blow.

Help to Buy is set to end in 2023 but will face new restrictions from 2021, when it will only be available to first-time buyers and be subject to regional price caps.

Joseph Daniels, chief executive of Project Etopia, said: “Building more homes is the long-term solution to the housing crisis, not a free leg up, but this startling research shows just how far Help to Buy is underpinning and driving the new build market across the whole of England.

“There is a danger that, once the scheme ends, the rug could be pulled out from beneath those areas that have come to rely on Help To Buy to too great a degree.”

Kevin Dunn, director at Furnley House, agreed that it was “definitely a concern” for some areas and said he hoped the current political uncertainty would soon pass so issues like this could be addressed.

He said: “These everyday problems are being skipped over. Hopefully the government will either extend the scheme or introduce something in its place to help such areas.”

Mr Dunn also thought the market could see new developments with smaller and potentially more affordable housing once the scheme is restricted to first-time buyers in 2021.

He said: “Developers may change the way they design the sites. They may have to have more affordability and smaller homes.

“This is a good thing — clients I speak to find it hard to find a new build two-bed home. Most are larger three or four beds, sometimes worth half a million pounds.”

The Help to Buy scheme has created a bit of a bubble in terms of property prices, according to Dan White, of White Financial Services.

He said affordability of new builds in Help to Buy heavy areas had skewed consumer views on the cost of such properties, because the extra help from the government was seen as “monopoly money”.

He added: “Once the scheme ends, you may find either a shortage of new builds being built or a number of new builds unable to sell.

“On top of that, those who have bought through the scheme could be unable to sell due to a lack of equity in a property that has not necessarily increased in price.”

Just earlier this week advisers were warned of a crunch in the Help to Buy space as more borrowers using the scheme are to face charges for the first time while others will see theirs hiked.

Many of those who used the scheme in its first year are now facing higher fees, while those in the second year are facing fees for the first time.

By Imogen Tew

Source: FT Adviser

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Fears growing around ‘over reliance’ on Help to Buy

Some areas of England are becoming so reliant on Help to Buy there are fears they could face problems when the scheme ends in 2023.

New research by modular homes developer, Project Etopia, revealed in Northampton 97% of new build sales were sold under the Help to Buy: Equity Loan scheme last year.

Other areas with a high percentage of new builds sold through Help to Buy included Burnley, Derby, Warrington and Bedford, according to the study.

Across the country more than half of new-build property purchases were funded by the government-backed scheme aimed at helping more people, particularly first-time buyers, on to the property ladder.

Project Etopia said this heavy reliance on the scheme, which was used in conjunction with 52,000 of the 100,000 new build purchases in 2018, reinforced concerns that when it is axed the housing market will be dealt a serious blow.

Hotspots

But it also feared the problem could be more acute in the ‘hotspots’ it identified with the highest uptake of the scheme, such as Northampton.

Joseph Daniels, CEO of Project Etopia, said: “Building more homes is the long-term solution to the housing crisis, not a free leg up. This startling research shows just how far Help to Buy is underpinning and driving the new-build market across the whole of England.

“There is a danger that, once the scheme ends, the rug could be pulled out from beneath those areas that have come to rely on Help to Buy to too great a degree. This study gives us an early indication of which markets will be most resilient.”

Project Etopia said the reliance on Help to Buy was more severe in the country’s towns and cities, with just over 54% of new build sales in these area funded by the government scheme.

The research found the highest number of Help to Buy new builds were sold in Wakefield, West Yorkshire, where 740 transactions took place under the scheme. Meanwhile, the lowest was in Eastbourne, East Sussex, where just one new build was sold through Help to Buy in 2018.

The location which was least reliant on Help to Buy was Cambridge where just 17.7% of new builds were bought through the initiative.

(Source: Project Etopia):

Name Total transactions 2018 Total HTB 2018 % New Builds sold with HTB
Northampton 241 234 97.1%
Burnley 102 95 93.1%
Derby 198 183 92.4%
Warrington 128 117 91.4%
Bedford 620 557 89.8%
Watford 60 52 86.7%
Harlow 152 130 85.5%
Wolverhampton 249 212 85.1%
Gosport 13 11 84.6%
Grimsby 104 84 80.8%

By Kate Saines

Source: Mortgage Finance Gazette

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First Time Buyers Helped by Weak House Price Growth

House price growth in the UK remained subdued for the fifth month in a row in April, according to the latest figures from Nationwide.

House prices in the country grew 0.9% in April compared to the same time last year – a slight rise from the 0.7% annual growth seen in March. Annual house price growth has in fact been below 1% every month since December 2018. However, house prices actually fell month-on-month in April, dropping by 0.4% in April. According to the Nationwide House Price Index, the average price of a home in the UK is now £214,920.

Before the Brexit referendum in 2016, house prices in the UK were growing by around 5% each year. But as many market analysts have mentioned Brexit uncertainty as a cause of the subdued growth seen recently, the stagnating prices have helped to attract a growing number of first-time buyers to the market.

The number of mortgages being taken out by first-time buyers today is approaching the levels seen before the global financial crisis in 2008. As well as the slow growth of property prices, first-time buyers are also being attracted to the housing market due to high employment rates, real wage growth and low mortgage rates.

“While the number of properties coming onto the market has also slowed, this doesn’t appear to have been enough to prevent a modest shift in the balance of supply and demand in favour of buyers in recent months,” said Robert Gardner, chief economist at Nationwide.

“While the ongoing economic uncertainties have clearly been weighing on consumer sentiment, this hasn’t prevented further steady gains in the number of first-time buyers entering the housing market in recent quarters. Indeed, the number of mortgages being taken out by first-time buyers has continued to approach pre-financial crisis levels in recent months.”

While low mortgage rates, the strength of the labour market and projects such as the government’s Help to Buy scheme are helping first-time buyers get onto the property ladder, the biggest obstacle remains raising a large enough deposit.

“First time buyer numbers have been supported by the strength of the labour market conditions, with employment rising at a healthy rate, and earnings growth slowly gathering momentum,” said Gardner. “While house prices remain high relative to average earnings, low mortgage rates have helped to support mortgage affordability. Indeed, raising a deposit appears to be the major barrier for prospective first-time buyers.”

Jeremy Leaf, former residential chairman at RICS, said: “Soft growth in the last set of figures from Nationwide is continuing and confirmed on the high street. Clearly, Brexit uncertainty in the minds of homebuyers is still outweighing almost record low mortgage rates and employment numbers as well as improved affordability. A glimmer of good news is that first-time buyers are taking advantage, particularly of help to buy and deposits from the bank of mum and dad, not forgetting reduced competition from landlords.”

Source: Money Expert

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1,000 homes a week purchased through Help to Buy last year

Just over 52,000 homes were purchased through the Help to Buy: Equity Loan scheme in England in 2018 – a 12% increase on the previous year, the latest government figures showed.

Across what’s being hailed as a very successful year for Help to Buy by mortgage industry figures, an average of around 1000 households per week bought property through the scheme.

The Ministry of Housing, Communities and Local Government (MHCLG) introduced Help to Buy in 2014 as a way of assisting first time buyers trying to get on the property ladder, and the total number of homes bought with its help since its inception is now above 210,000.

More than 42,000 (81%) of homes bought in England in 2018 through Help to Buy were purchased by first-time buyers – a 14% increase on 2017 – which means one in seven purchases by first-timers was through Help to Buy.

Recent research showed first-time buyers needed to find a deposit of more than £30,000 in order to purchase a home in 2018 – an increase on the previous year.

Very successful year
Kate Davies, executive of Intermediary Mortgage Lenders Association (IMLA), said: “The statistics for 2018 highlight a very successful year for Help to Buy. The government’s programme has continued to stimulate the bottom of the housing ladder and indirectly support the whole of the UK property sector throughout 2018.

“With as many as one in every seven first-time buyers using Help to Buy in England in 2018, it is likely that the programme will remain invaluable in supporting home buyers over the remaining years of the scheme.

“While we are yet to see if the programme is continuing to grow in 2019, strong HMRC transaction statistics for Q1 2019 possibly indicate that Help to Buy-fuelled sales are still running at a healthy pace, continuing the trend we have been witnessing for more than a year.”

Beyond 2023
The government has indicated that Help to Buy will come to an end in 2023 and, while welcoming the figures for 2018, Craig Hall, head of broker relationships and propositions at Legal & General Mortgage Club, warned that first time buyers need further help.

He said: “Looking beyond the scheme’s end, it’s vital that government and industry works together to ensure these buyers remain supported. It’s likely that we may see private schemes coming to market to help fill the void.”

He added that higher LTV lending from mortgage providers and family assist mortgages are also helping first-time buyers, who should always seek out the expertise of a mortgage broker before taking any course of action.

Written by: Max Liu

Source: Your Money

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Help to Buy smashes through £10bn milestone

The Help to Buy equity loan scheme allowed 1,000 sales a week to be completed in 2018, according to the Ministry of Housing, Communities and Local Government.

The ministry’s statistics, published today (February 26), showed Help To Buy equity loans exceeded £10bn for the first time in the third quarter of 2018.

Kate Davies, executive director of the Intermediary Mortgage Lenders Association, said the statistics show that Help to Buy has become a cornerstone of the UK property market.

Ms Davies said the government’s programme continues to stimulate the bottom of the housing ladder, providing essential support to the whole of the UK property sector.

However in Budget 2018, chancellor Philip Hammond announced Help to Buy will come to an end in 2023.

She said: “These figures show a continuing trend in what looks set to be the strongest year so far for Help to Buy sales, with total completions since the scheme began likely to have passed the 200,000 mark by the end of 2018, with around 1,000 sales a week completing with the support of Help to Buy in 2018.

“We expect Help to Buy to remain invaluable in supporting home buyers into the next decade.

“The support will also help keep the property market on an even keel during a period of heightened uncertainty as a result of the UK’s expected departure from the EU this year.

“Given the important role Help to Buy plays in lifting households into home ownership and the large number of people who have not been able to climb onto the first rung of the property ladder, long-term solutions are required to ensure the continuing prosperity of the housing market, post-2023.”

Mark Dyason, managing director of the specialist property broker Thistle Finance, said in an increasingly glacial market, Help to Buy has kept the new build sector afloat and enabled many first time buyers to get on the ladder.

But he warned when it finally comes to an end, the fallout for the biggest developers that have benefited from it the most could be devastating.

Mr Dyason said: “The major property developers have done exceptionally well out of Help to Buy but at some point the supply of the drug will stop and they will have to go cold turkey.

“Help to Buy is in much the same vein as low rates since the Global Financial Crisis. They have kept the economy going but equally they have kicked the can down the road.

“The Help to Buy scheme is arguably a hollow victory with the potential to cause all manner of problems both for the buyers who have used it and the developers that have offered it.

“We live in an era of short-termism but the fall-out from artificial props like Help to Buy could be long-term.”

Source: FT Adviser

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Help to Buy sends number of first-time buyers into the 12-year record books

The number of first-time buyers reached a new high last year – with the catalyst being Help to Buy, the scheme that helps purchasers of new-build homes only.

According to trade body UK Finance, there were 370,000 new first-time buyer mortgages completed last year, some 1.9% higher than in 2017.

This is the highest number of first-time buyer mortgages since the pre-crash year of 2006 when the figure was 402,800.

In the last month of last year, there were 30,900 first-time buyer mortgages completed, up 1.6% on a monthly basis.

The number of home-mover mortgages was down in December, at 30,000. This was 1.3% fewer than in November. Altogether last year, there were 367,800 new home-mover mortgages, 1.9% down on 2017.

Buy-to-let purchase mortgages also dwindled last year.

In 2018, there were 66,400 new buy-to-let home purchase mortgages, or 11.5% fewer than in 2017.

Remortgaging in both home-owner and buy-to-let sectors rose – by 10.8% and 11.2% respectively.

Jackie Bennett, director of mortgages at UK Finance, said: “The mortgage industry helped 370,000 people buy their first home in 2018, the highest number in 12 years, as competitive deals and government schemes such as Help to Buy continue to boost the market.

“Home-owner remortgaging also saw strong growth driven by customers locking into attractive rates, a trend we expect to continue in 2019 as more fixed-rate mortgages come to an end.

“Demand for new buy-to-let purchases continues to be dampened by recent tax and regulatory changes.

“However, the number of buy-to-let remortgages reached a record high of almost 170,000 last year, suggesting many landlords remain committed to the market.”

John Phillips, operations director at Just Mortgages and Spicerhaart, said: “First-time buyers are holding up the purchase market, as incentives Help to Buy and the freeze on Stamp Duty, plus new mortgages like Lloyds ‘lend a hand’ 100% mortgage offering coming on to the market, are making it easier for them to make that first move on to the housing ladder.

“We are increasingly seeing people choosing to remortgage to free up cash to do work to their current homes rather than move, either because the Stamp Duty and other costs make it too expensive, or because they are unwilling to take the risk in an uncertain market.

“But post March 29 I think there will be a change in sentiment. No matter what the outcome, uncertainly will be taken out of the equation, and as a result, I think the purchase market will start to pick up. But overall, we will probably not see the effects of that until much later on in the year.”

Despite the surge in first-time buyers, the number of renters between the ages of 25 and 34 has risen 20% since 1998, according to the ONS.

Source: Property Industry Eye

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Some rare good news for landlords

The trouble with the sheer volume of Budget coverage in the press is that it’s easy to overlook some of the less dramatic announcements. Here are two property-related changes you might have missed, along with a rare good-news story for landlords.

Help to Buy has its wings clipped

Last week’s Budget confirmed that the Help to Buy equity-loan scheme, which offers taxpayer-backed loans worth 20% of the purchase price of a new-build house, will be extended until 2023. But from April 2021 it will only be available to first-time buyers. Buyers will also only be able to purchase properties worth up to 1.5 times the “current forecasted average first-time buyer price” for the region, with a maximum of £600,000 for London. This will mean buyers in the north east will only be able to buy houses worth a maximum of £186,100, while those in the north west will be able to spend up to £224,400.

The current iteration of the equity-loan scheme has been widely criticised for pushing up the price of new builds, as it widened the pool of people who could suddenly afford new-build properties and fuelled demand. So it follows that a price cap might push prices down somewhat by tempering demand, perhaps to the point where the original Help to Buy borrowers could have afforded to buy without the scheme. Unfortunately, these people are already (or will soon be) stuck paying the interest on their government loans (which are interest-free for the first five years).

Crackdown on energy efficiency

Another measure from last week’s Budget that escaped many people’s attention will see more landlords required to improve the energy efficiency of their properties. Since April, landlords who own properties with an energy-performance certificate rating of F or G have had to upgrade them to at least band E or face being barred from arranging new tenancies. Yet landlords only had to carry out these improvements where financial support was available to cover the costs.

From 2019, however – a date is yet to be specified – landlords will have to pay for improvements that don’t exceed £3,500. The cost of bringing a house to the minimum energy-efficiency level is typically around £1,200. This new rule will affect 290,000 properties, estimates the government. Most landlords should not be affected by this rule change, assuming their properties already comply.

Buy-to-let borrowers in demand

Mortgage lenders are offering attractive deals to buy-to-let landlords, in a bid to win the business of those who haven’t left the increasingly unprofitable sector. The past few years haven’t been kind to landlords, as the government has brought in various taxation and regulatory changes in an attempt to slow the expansion of the buy-to-let market. In the first half of this year, landlords spent £12.1bn on new buy-to-let purchases, which is 30% lower than the amount spent in the first half of 2015.

So buy-to-let lenders are competing for fewer customers, and adjusting their offers accordingly. Last month the average five-year fixed buy-to-let rate had fallen to 3.4%, the lowest level since data provider Moneyfacts began collecting these figures in November 2011. Leeds Building Society currently offers an “easy start” mortgage, which gives landlords an initial three months of interest-free payments before reverting to a fixed rate of 2.72% for the rest of the five-year period. The Mortgage Works, part of Nationwide Building Society, offers a five-year fix at 1.99% (plus a £1,995 fee), while Sainsbury’s offers a two-year fix at 1.4%.

Source: Money Week

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West Midlands third for Help to Buy sales

The West Midlands has had the third highest number of homes in England sold through the Help to Buy equity loan scheme since its launch five years ago.

More than 169,100 completed Help to Buy equity loan purchases have been made since 2013 worth an estimated £42.2 billion.

The figure for the West Midlands was 7,074, with Birmingham the area with the most at 1,532.

Of all purchases nationally, 81 per cent were made by first-time buyers.

The scheme is set to run until 2021, although it has been under scrutiny with claims it is enabling people who can afford to buy without the equity loan to climb on to the property ladder with just a five per cent deposit, thus driving up property prices.

Homelessness charity Shelter analysed the increased amount of mortgage lending in correlation to the scheme and concluded Help to Buy has increased the average home price by £8,250.

Housing experts at Fasthomes.org carried out the research to find out which counties in England have had the most and least completed Help to Buy equity loan property purchases.

Interest-free

It found that London was top with 12,206 and Greater Manchester second with 7,280. Staffordshire had 3,737.

Within the West Midlands Sandwell had 991 sales, Walsall 922 and Dudley 753.

The Government launched the Help to Buy equity loan mainly to help people step on to the housing ladder. It allows buyers with a minimum five per cent deposit of a property value to secure an interest-free loan of a further 20 per cent in England and Wales for the first five years.

The loan is only available on new-build homes up to £600,000.

The Government id currently deciding on the future of Help to Buy.

The Home Builders Federation says the scheme has been an “unmitigated success”, with 81 per cent of those helped having been first-time buyers.

Source: Express and Star

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UK housing market is a bubble with Help to Buy pushing up prices, warns bank strategist

The UK housing market is a “bubble on a bubble” – and property prices, reported this morning to average over £302,000, are over-valued by around 12%.

The ‘bubble’ warning comes from Societe General global strategist Albert Edwards, who says the bubble has been inflated by a decade of loose monetary policy and, in particular, Help to Buy.

Edwards said: “What you are doing is lending them [buyers of new-build homes] more money backed by the taxpayer to push up house prices even more.”

He said that while US house prices had corrected back to normal levels after the financial crisis of ten years ago, the UK housing market had become a “bubble on top of the previous bubble”.

He said that the housing bubble could burst in the next recession, which he believes would also wipe 80% off the value of equities and herald a new “ice age”.

Edwards, who works for the French bank in London, said that it was a damaging myth that it is a lack of supply that is causing the UK housing crisis.

He blamed the “free money” of Quantitative Easing and Help to Buy, which he told yesterday’s Telegraph had been implemented under “that moron” George Osborne.

Edwards said: “There’s a lot of stock there that could just be dumped on to the market. Nothing engenders selling more than falling prices.

Under Help to Buy, purchasers of new-build homes need put down only a 5% deposit, but can take out a 20% government loan to bring the total deposit to 25%. They are not charged fees on the loan for the first five years, but must then start paying interest. When the home is sold, the Government will reclaim its 20% stake plus a share of any increase in value.

Meanwhile the International Monetary Fund says that house prices in some of the world’s largest economies, including the UK, could be over-valued by as much as 12%, and separately this morning the Daily Telegraph’s front page story was a call to cut Stamp Duty “to end our housing disgrace”.

Boris Johnson said Theresa May should cut “absurdly high” Stamp Duty and abandon affordable housing targets that developers currently have to meet.

The LSL Acadata survey reported this morning that the average house price in England and Wales now stands at £302,251 after a tiny monthly fall of 0.2%.

The figure, for July, is still up 1.6% on an annual basis.

In London, the average property price is £625,529 with annual falls in 21 out of the 33 boroughs.

Transactions during the month were an estimated 75,000, 2% down on June. In the first seven months of this year, transactions are thought to be 4% down on the same period last year.

There was also a 7% drop in sales in the second quarter of this year.

  • In today’s Telegraph, Boris Johnson says that the proportion of owner-occupiers aged between 25 and 34 has “plummeted to 39%”. However, the Halifax says that first-time buyers now represent 51% of the market and has also reported that Help to Buy has been a significant factor in the rise of first-time buyers – see our next story today.

Source: Property Industry Eye

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Help to Buy can benefit buyers who have done their research

The government’s Help to Buy loan was launched in 2013 with the aim of helping young people onto the housing ladder.

Available only for new-build homes, the idea is simple: the government lends buyers up to 20 per cent of the cost of the home, and the buyer then only needs a 5 per cent cash deposit and a 75 per cent mortgage to make up the rest.

The government part of the loan – the 20 per cent – is interest-free for the first five years.

Between the scheme’s launch in April 2013 and the end of December 2017, almost 159,000 properties were purchased using a Help to Buy loan.

This year marks the fifth anniversary of the scheme, which means payments on the first Help to Buy loans are now becoming due, initially at a rate of 1.75 per cent. On a loan of £40,000 this equates to £700 a year or £58.33 a month. After that, they will increase by the rise in retail price index, plus another 1 per cent every year, which means that £58.33 monthly repayment will shoot up to at least £91.60 in year seven.

So with this in mind, is the Help to Buy scheme a good investment or is it a ‘buy now, pay later’ scheme about to cause financial problems for many suddenly faced with new interest payments?

You can get on the housing ladder sooner 

The first clear benefit of the scheme is that it can help first-time buyers get onto the housing ladder a lot sooner than they may otherwise have been able to. With Help to Buy, borrowers only need to find a 5 per cent deposit, which means not only can they can save their deposit more quickly, but, as house prices have risen significantly over the past five years, means they potentially bought the property for less than if they had had to wait. The value of this has already been demonstrated by the 159,000 who have already used it.

You could buy with a smaller deposit but get better mortgage rates

To buy your first home most lenders are looking for 10 per cent deposit. Which means on a house worth £179,594 (the average cost of a first time buyer property) the buyer would need a deposit of £17,960 and be left with a mortgage of £161,635.

With the Help to Buy scheme, the government puts in 20 per cent and the borrower only has to find a deposit of 5 per cent. This means on the same property, the borrower pays a deposit of £8,980 but is left with a much lower mortgage – £134,696 and therefore a better loan-to-value and consequently a lower mortgage rate. So, not only is the main mortgage lower, but the client also gets a more competitive rate of interest.

You can borrow interest-free for five years

Buying a home is obviously an expensive business, but it does not stop once the contract is signed and the house is bought. There are all sorts of other expenses in the first few years of owning a new home, and the fact the government portion of the loan is interest-free for five years can be very helpful.

However, while the Help to Buy scheme gives those who could not otherwise afford to buy the opportunity to do so, there are drawbacks, and advisers must ensure their clients have carefully considered these before committing to a loan.

The loan gets more expensive

The interest on the government portion of the loan is quite low when it becomes due: 1.75 per cent. However, after the sixth year, the rate starts to increase. The borrower needs to have budgeted for this, which is what the first swath of Help to Buy borrowers are facing right now.

This sudden introduction of charges can cause problems for those who are unprepared

While the interest-free loan seems very attractive at the time, once the borrower has to start paying it back, interest will increase by 1 per cent plus any increase in the RPI each year. So even if the RPI falls at any time, charges on the government loan will still increase by at least 1 per cent, which on a £40k loan is at least £30 a month more each year. This ever-increasing cost is something potential buyers need to be aware of and prepared for.

It is therefore vitally important that advisers make it clear to their clients looking to use Help to Buy that the loan is not interest-free indefinitely, and make sure they are in position to put money aside to prepare themselves financially for when the loan does need to be paid back.

Uncertain future

Not all lenders will lend on Help to Buy, which means that when a client does come to the end of their deal, their options may well be restricted. This, combined with the rising costs of the government part of the loan, means clients need to be cautious.

Advisers need to ensure their clients are familiar with the lenders who will remortgage a Help to Buy deal, so they can help their clients to remortgage if need be.

You could fall into negative equity

We know that house prices fall as well as rise, but due to the structure of the Help to Buy loan, there is a risk of negative equity.

There is speculation that Help to Buy has inflated house prices, and that those on the scheme have paid more for their new builds than they are actually worth.

This means if house prices fall, there could be Help to Buy borrowers in negative equity. As first-time buyers quite often move after two or three years, this could cause real problems, especially if these borrowers come to the end of theirdeals and find their LTV has actually increased.

There is also the issue that homes bought new using the scheme are competing with new builds, making it harder for their owners to sell, possibly forcing them to drop their asking prices.

Your home is not 100 per cent yours but you are responsible for it

With a standard mortgage, the lender’s charge only covers the amount owed, with the borrower retaining any additional equity at the point of sale.

With Help to Buy, advisers need to make it clear to clients that the government has a charge for the initial 20 per cent borrowed but will also benefit from any rise in the property’s value, even if this is due to improvements the client has made and paid for.

Advisers also need to make clients aware they will need permission to make any substantial improvements to the property and will pay 100 per cent of the cost of those improvements, but only receive 80 per cent of the profits.

You cannot rent the property out

One of the stipulations of a Help to Buy loan is that you cannot sublet it, something, Dave Miller warns, many people are unaware of.

“If a couple who both own their own homes decide to move into together, it would be quite sensible to move into one property and keep the other one as an investment and rent it out.

“But, if that property was bought through Help to Buy, subletting it puts the owner in breach of their loan agreements. The only way a Help to Buy can be rented out is by repaying the Help-to-Buy part of the loan.”

So is it worth it?

The expectation was that the borrowers’ wages would go up, or the value of their home would increase, or both, leaving them in a position after five years to either pay off the government part of the loan in full or start paying back the loan on top of the rest of their mortgage payments. But for many it may not have worked out like that.

Many houses bought on Help to Buy schemes have not increased in value as much as the owners may have hoped, while some have actually dropped in value, often because the original prices were inflated.

We have also seen wages stagnate, inflation rise and interest rates may rise soon, which means not only will those on Help to Buy see their government loan due for repayment, but could see their monthly mortgage repayments rise too, a double whammy.

The Help to Buy scheme has seen lots of first-time buyers taking on a huge financial commitment, thinking their financial position would improve by the time the first payments were due, but five years down the line some are now finding they are not quite where they wanted to be and this could start to cause affordability issues.

Nevertheless, the scheme has been very useful, and many first-time buyers who otherwise would have not been able to get a foot on the property ladder have done so.

Advisers need to ensure any client looking to buy using the Help to Buy scheme is fully aware of all the pros and cons and that their situation suits the scheme. Once a client is on the scheme, advisers should be contacting them at least annually to ensure they are making preparations forthe future.

We do not want to end up in an interest-only mortgage situation, with customers burying their heads in the sand until it is too late.

Source: FT Adviser