Help to Buy or Help the Builder?

“Help to Buy” has been in the news increasingly recently. Official house price figures show a national increase of 6.8% on the year. Traditionally such statistics attract a great deal of interest from satisfied home owners or anxious first time buyers. The property market seems to be moving faster and some say this is as a result of the governments Help to Buy scheme. In the recent budget the scheme was extended to run to 2020.

What is Help to Buy?
“Help to Buy” is a scheme to assist buyers purchase a new house or an existing home with only a 5% deposit. For example you buy a £200,000 new home from a builder with £10,000 deposit and £40,000 government loan and 75% mortgage. You do not need to be a first time buyer.

The government loan is based on the share of the house so if the house goes up in value the share starts at 20%. You don’t have to pay the loan back in the first 5 years. This sounds like a good deal but the catch is of course that the loan must be repaid. The loan is interest free for the first 5 years and after that attracts interest at a rate linked to RPI.

Does it work?
Help to buy certainly helps buyers with small deposits to buy a new home. The concern is that some buyers may be tempted into over stretching themselves. A small fall in house prices could push homeowners toward negative equity. House prices may remain flat in the North East for years to come. If the Help to Buy loan is to be repaid in whole or in part there are transaction costs to pay. Help to Buy does need to be approached with caution and it is always better to save a bigger deposit where possible.

The deal is certainly helping house sales and the shares of all the builders including local builder Bellway have risen as a result. So far around 17,000 Help to Buy transactions have completed and at David Gray Solicitors we have developed experience of these arrangements.

If you have questions about Help to Buy contact our property team to find out more.