The difficulty for First Time Buyers in getting that first step on the property ladder is well documented; the price of homes. The Independent reported in April 2018 that the average house price is now up 8 times on the average earnings. Grim reading for most, and why schemes such as Help to Buy ISA’s, SDLT breaks for First Time Buyers and now Shared Ownership Purchasers are a welcome relief to many looking to purchase their first home. Is the Help to Buy loan really the silver lining in the gloomy cloud of the property market for First Time Buyers? Whilst it offers the additional 5% required to meet that first rung on the ladder is it a false start?
Home moving company Reallymoving.com have suggested that Help to Buy loans could be as problematic as PPI claims and just as prevalent reporting that 70,000 First Time Buyers could be effected. The market research carried out shows that those using Help to Buy Loans paid on average 8% more for their homes, than those who did not, meaning that the short term gain is actually a loss in the long run. Clearly if there is more debt to pay off then when it comes to selling your property there becomes a real issue in terms of assessing what it is worth. The risk is that your home simply isn’t worth what you have paid for it and therefore you end up having to pay to sell your home.
The scheme works on the basis that you can borrow up to 20% of the property value and you don’t have to pay any of this back for the first 5 years. Subsequently you pay 1.75% for 5 years and thereafter 1% above inflation. Given you can only pay this loan back in either 50% increments, or wholly, and the average Help to Buy loan is £56,000.00, not many first time buyers are going to have that kind of money. It therefore begs the question; is the Help to Buy loan scheme actually only serving to increase property prices artificially in order that these first time buyers actually have sufficient funds to pay them off!
The Help to Buy loan’s conditions make it very burdensome to pay back, it is not possible to pay in monthly installments, or alongside a mortgage or similar, it must be paid in large lump sums which simply do not suit its target market. The Government and Help to Buy agencies should perhaps realign the Help to Buy Loan with its intended audience to make a more effective and worthwhile product. The success of the Help to Buy loan is that it has helped over 183,000 first time buyers buy their first home, but unfortunately for those in this scheme the worst may indeed be yet to come.
Thomas Barnes - Trainee Solicitor
MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at davidp@mjpconveyancing.com
