First time buyers using Help to Buy ‘pay up to 22% more for new homes’
FIRST-time buyers using a Help to Buy equity loan are forking out up to almost 22 per cent more for homes than those who bought without one.
According to new research, developers are using the government-backed scheme to take advantage of buyers by pushing up property prices.
It's the opposite of what the scheme hopes to achieve by lending buyers up to 20 per cent - or 40 per cent in London - of the price of a new build property, interest-free for five years.
It's supposed to help thousands of potential homeowners onto the property ladder facing unaffordable house prices by lowering their mortgage.
But it also leaves room for developers to push up prices for buyers eligible for the scheme.
On average, using the equity loan adds an extra 10 per cent to property prices in the 12 months to September 2019, according to home-moving service .
Buyers in Yorkshire are hit the worst by premiums of up to 21.6 per cent, compared to Wales where the price difference is just 0.9 per cent.
Those in the West Midlands are almost on par with 21.5 per cent added to Help to Buy houses, and the region with the third biggest premium is in the North West where it's 19.9 per cent.
Buyers in Scotland also face a 14.7 per cent premium in the same period.
Rob Houghton from reallymoving said that the developers are the ones "reaping the benefits" of the scheme, not buyers.
"In many cases [first-time buyers] simply don’t have the deposit required to explore other options such as buying a second-hand home, which may offer considerably better value," he explained.
What help is out there for first-time buyers?
GETTING on the property ladder can feel like a daunting task but there are schemes out there to help first-time buyers have their own home.
Help to Buy Isa - It's a tax-free savings account where for every £200 you save, the Government will add an extra £50. But there's a maximum limit of £3,000 which is paid to your solicitor when you move.
Help to Buy equity loan - The Government will lend you up to 20 per cent of the home's value - or 40 per cent in London - after you've put down a five per cent deposit. The loan is on top of a normal mortgage but it can only be used to buy a new build property.
Lifetime Isa - This is another Government scheme that gives anyone aged 18 to 39 the chance to save tax-free and get a bonus of up to £32,000 towards their first home. You can save up to £4,000 a year and the Government will add 25 per cent on top.
Shared ownership - Co-owning with a housing association means you can buy a part of the property and pay rent on the remaining amount. You can buy anything from 25 to 75 per cent of the property but you're restricted to specific ones.
"First dibs" in London - London Mayor Sadiq Khan is working on a scheme that will restrict sales of all new-build homes in the capital up to £350,000 to UK buyers for three months before any overseas marketing can take place.
Starter Home Initiative - A Government scheme that will see 200,000 new-build homes in England sold to first-time buyers with a 20 per cent discount by 2020. To receive updates on the progress of these homes you can register your interest on the website.
The premium can also leave homeowners in negative equity when they come to sell, or struggling to compete with new developments offering Help to Buy, forcing them to accept a lower price.
Rob added: "It's important that those using the scheme consider their exit strategy, including whether or not they can afford the loan repayments on top of their mortgage when the interest free period comes to an end."
The scheme is currently open to any buyers who will be living in the property, even if it's not your first home, as long as you have enough for a five per cent deposit.
You're just not allowed to use it to purchase a buy-to-let.
From April 2021, the scheme will be restricted to first-time buyers only and regional price caps will also be introduced.
Paula Higgins from the Homeowner's Alliance said that the scheme has been successful in aspiring homeowners to take the leap onto the property ladder.
"But before they do, buyers need to figure out how much they can afford and what their mortgage options are," she said.
"There are more mortgages available now - such as 95 per cent mortgages - which means Help to Buy might not be so necessary for those struggling to get their deposit together.
"It's important for first time buyers to do their research before being ushered into a showroom as they could decide an older home might be more suitable as well as holding its value in the longer term."
Many buyers are sucked in by the interest-free period for the first five-years but once it's up, borrowers will be charged 1.75 per cent on the outstanding balance.
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This then increases every year inline with the RPI measure of inflation plus one per cent.
But buying a home on the "wrong" day could actually end up costing buyers an extra £4,760.
Some critics have also slammed the scheme has benefited more rich households than poor.
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