Help To Buy – the good, the bad and the ugly

The hot topic at the moment is the governments housing initiative called ‘Help to Buy.’ The next generation of property owners face the largest difficulties in stepping on to the property ladder, with increasing house prices and rentals meaning saving for a deposit in the current climate is beyond people’s means. Before the 1970’s people rented merely as a stop-gap before being able to put down the deposit on their own home. Now with the demand so high on rental properties due to a shortage of new homes and a mobile work force relocating where industry needs them, the pressure on the rental market has caused prices to rise rapidly. People are now finding themselves in a renting trap, particularly leaving hard-working families and the younger generation feeling a lack of control and stability for the future. Help to Buy is not essentially a new scheme, but an extension on the previous Newbuy initiative which helps Uk citizens with 5% deposits purchase a new-build property with a value up to £600,000 to be used as their primary residence. In 2013 Help to Buy now means that you can purchase a new or older property to be your only home again up to the value of £600,000 through one of the two schemes that are available, both requiring you to pay a 5% deposit. There is the help to buy mortgage guarantee and the Help to buy Equity Loan. The former works as the government and the participating lenders have struck up a deal that the government guarantees to the lender repayment of the mortgage of up to 15% of the property value. Users of this scheme must pass eligibility checks and make mortgage repayments rather than just interest-only. Participating lenders are Bank of Scotland, Halifax, NatWest and RBS. Of course any governmental initiative has its sceptics and its champions. Let’s look at the general pros and cons of the Help to buy mortgage scheme-
Advantages -
  • The government understands the difficulty of the next generation becoming home owners and are attempting to provide the means for them to overcome the barriers faced.
  • You only have to save a 5% deposit.
  • You can be a first time buyer or already a home owner, but it must be your primary residence.
  • Disadvantages-
  • You must pass the lenders eligibility checks that determine if you have any history of bad credit rating and not meeting debt repayments then you will not qualify.
  • You cannot let your property out.
  • You must make mortgage repayments (not interest only) just like any normal mortgage. The only new benefit of this scheme is that you can get this mortgage by only having to pay a smaller deposit.
  • The second leg of the scheme is called the Help to Buy Equity Loan. This is available on new homes only and means again that after coming up with a 5% deposit, the government loans you 20% (equity loan) and a 75% mortgage will make up the difference. This initiative has come under the most attack from sceptics as the equity loan is interest free for the first five years, which is great but after this you need to repay 1.75% of the loan, which will increase every year by 1% plus RPI. It is feared if the economy suffers a future set back the only way the government will recover this is to push up interest rates, and therefore people risk losing their homes if they cannot keep up. This could ultimately destroy the lives of the people the scheme had set out to help. New figures released by Rightmove also show that a result of both elements of the scheme overall is that housing prices have risen by 10% (in London) due to the demand on the market. A left wing perspective from anther blog writer, Mike Smith, is that the failure for the supply of new builds to increase is that investors and developers quite literally face a brick wall due to current middle class homeowners. They block planning permission to be granted, fearing that a new shiny block of flats across the road will cause their home to decrease in value. Therefore without knowing it they are making the world a tougher place for their next generation. Will house prices just go up and up? Will we see a housing bubble? Only time will tell. By Natalie Elms. Senior Lettings Negotiator at Property People. Estate agents in Wimbledon Park
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