Help To Buy (H2B) is an equity loan scheme aimed at helping first-time buyers get a foot on the property ladder by part-buying their home and taking a government loan to cover the rest. It is now being reported that H2B’s latest incarnation could leave unsuspecting people with as much as £32,000 in interest payment increases.
Help To Buy is not a new idea, but it is due to be relaunched in April with some important tweaks to the formula. The overall concept is for the government to provide equity loans to buyers who would otherwise be unable to afford to purchase their own home.
April’s relaunch of H2B only requires homebuyers to save a 5% deposit with the government adding another 20% (or 40% in London). Owners then pay rent payments on the portion purchased with the loan. Importantly, they are only required to repay this loan when they come to sell the property.
It’s a great idea, on paper, and one which can help make homeownership dreams a reality for thousands of people.
But, and it’s a big BUT: when the owner comes to sell the home and the government comes looking for its 20% back, they don’t just want the same 20% they loaned you in the first place. Instead, they want 20% of the new SALE VALUE.
Given that houses often increase in value over time, 20% of the sale value will often be worth far more than the 20% (or 40% in London) sum you borrowed initially.
New research from Yes Homebuyers has now revealed exactly what this means in pounds and pence for H2B homeowners: After just 5 years of ownership and based on the average annual rate of property price appreciation over the last five years, the interest rate on the H2B loan could be as much as £32,000 in London and just under £20,000 elsewhere in the country.
This money is, for lack of a more accurate word, profit for the government.
“With the latest version of the initiative launching next month, the jury is still out on the benefit it provides. On the one hand, the government are lending a substantial sum to aid aspirational homeowners to realise their dream.
“However, with the sum lent also increasing in line with price appreciation, sceptics could claim that yet another Help to Buy initiative is nothing more than the government profiteering from the desperation of hard-pressed homebuyers.”
“While they’re extending a helping hand via a 20% or 40% deposit boost, they are also waiting at the other end with the same hand outstretched, not only for their initial loan, but for a percentage of the total sold price.
“An increase you could argue they have artificially engineered by continuing to fuel demand with schemes like Help to Buy, while ignoring the more pressing matter of building more homes to meet this demand.”