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Help To Buy – Two steps forward one step back on the Property Ladder?

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 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

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*MJP Conveyancing LTD is authorised and regulated by the Solicitors Regulation Authority – SRA No. 590889

MJP Conveyancing Ltd is a company registered in England and Wales Registered No: 8026741 VAT Number: 157917571. A full list of the directors is available upon request. We use the word 'Partner' to refer to a Director of the Limited Company, or any employee or consultant with equivalent standing and qualification. Equality and Diversity Policy Equality and Diversity Policy Statement for Clients * - In calculating this we measure the average time it takes to reach the stage of exchange ( not the date you actually move in which is known as the completion date) from the date we receive the contract from the sellers solicitors or from when we send the contract to the buyers solicitors. This period can be longer when delays arise which are not within our control. We cannot guarantee that we can achieve this average turnaround time in all transactions. This turnaround time does not apply to leasehold and leasehold and new build transactions.
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