Following recent news that the Government is expecting to announce in next month’s Budget that it will extend the Help-to-Buy scheme until 2023, reallymoving.com reveals that first time buyers using the scheme are paying on average 8% more than those buying new homes without Help-to-Buy.
According to data collected from almost 70,000 first time buyers using reallymoving for home move services, first time buyers purchasing a new build home without Help-to-Buy pay on average £257,908 compared to £277,968 paid by those who use the scheme.
New homes already command a 16% premium compared to second hand properties, reflecting the fact that they are chain free and come with brand new fixtures, fittings and appliances. However, an additional 8% is being paid on homes sold through Help-to-Buy.
It is possible that buyers who are using the scheme can afford to be more generous in the price they are prepared to offer, in addition to developers apparently demanding higher prices for Help-to-Buy homes.
A flagship housing policy of the Conservative Government, Help-to-Buy enables people to buy new homes with deposits of just 5%, with the Government providing an equity loan for an additional 20%, or 40% in London. Without the scheme, many buyers would be unable to afford to get on the property ladder, as they would lack sufficient savings to raise a full 25% deposit themselves. Help-to-Buy may encourage first time buyers to choose a more expensive property in order to benefit from an equity loan, making the deposit affordable.
Rob Houghton, CEO of reallymoving.com said: “The Help-to-Buy scheme has provided a leg up onto the housing ladder for many first time buyers but this data suggests that first time buyers may not be getting such a good deal after all. When they come to sell this could increase the risk that their home isn’t worth what they paid for it.”
Beneficiaries of the Help-to-Buy scheme may face difficulty when selling their property on, as it struggles to compete with new homes nearby offering Help-to-Buy, impacting its value. At a time when house prices are falling, particularly in London and the south east, first time buyers are at even greater risk of finding themselves in negative equity.
When it comes to repaying the equity loan, buyers can only pay off 50% or 100%, with no option for smaller payments. Interest starts at 1.75% after 5 years and increases every year at inflation plus 1%. Those hoping to sell may also find that as they are required to repay the equity loan in full, they are unable to also raise a deposit on their next property, leaving them trapped.