The future of Help To Buy | Personal Finance | Finance


However, critics say it is a state handout for the middle-classes that has inflated house prices and boosted developers’ profits at the expense of the taxpayer.

Is the criticism unfair and should you use the scheme’s help in order to buy a property before it is withdrawn or overhauled?

FREE LOAN

The Help to Buy equity loan is open to first-time buyers, former homeowners and home movers who are selling their property.

The Government lends up to 20 per cent (40 per cent in London) of the cost of a new-build home, with the buyer adding a 5 per cent cash deposit.

Armed with a 25 per cent deposit, they can get a competitive mortgage for the remaining 75 per cent.

It can be used to buy properties valued at up to £600,000, with no cap on the applicant’s income.

The loan is interest-free for the first five years, but charges kick in after that.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said the scheme has proved massively popular: “Almost 170,000 have used Help to Buy equity loans to get onto the property ladder, or climb onto the next rung since 2013.”

First-time buyers can call on further Government support from the Help to Buy Isa, which gives them £50 for every £200 they save towards a deposit.

The maximum you can save under the scheme is £12,000, which attracts a £3,000 bonus.

This has helped almost 200,000 to buy a property during the past three years, backed by £157 million of free money from the Government.

Coles urged first-time buyers to take advantage if they can: “If you are keen to own a home of your own, it is vital to take advantage of all available incentives.”

CLARITY REQUIRED

Although Help to Buy has several years to run, the big house builders want clarity to allow them to plan ahead.

Last week, Redrow chairman Steve Morgan said it would be “madness” to scrap the scheme after 2021 at a time when the Government is pushing the construction industry to complete 300,000 homes every year.

David Hollingworth, mortgage broker at L&C, said the scheme has done a valuable job in boosting affordability and increasing the supply of new properties, but this could reverse if it is dropped altogether after 2021.

Some amendments may be necessary, though.

“One option would be to focus help on first-time buyers only, rather than home movers.

Alternatively, the limit could be reduced from today’s £600,000,” he said.

MOVING ON

Hollingworth said buyers nearing the end of their two and five-year fixed rate Help to Buy mortgages face tricky decisions: “Those who bought five years ago will now start paying interest on their equity loan and may want to pay it off. However, the 20 per cent loan is based on the market value of their property so they might have to repay more than they think.”

Somebody who bought a house for £200,000 that is now worth £240,000 will owe £48,000, instead of £40,000, although of course they have benefited from house price growth on their share.

Gemma Harle, managing director of mortgage broker Intrinsic, also warned that not every lender will accept a remortgage application from Help to Buy borrowers: “This could limit the choice of deals causing problems for those looking to reduce their monthly outgoings.”

Help to Buy has done good work in propping up the housing market and helping people climb the ladder.

However, the challenge now facing Government, buyers and house builders is how to move on.



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