Help to Buy, yes or no?
16 Sep 2018
I have been saving to buy my first home for quite some time now and one of the biggest questions in my head has got to be," do I stretch myself and buy a flat on my own, although it may not be brand new it will be mine", or, "do I use this Help To Buy scheme and possibly buy a larger home, arguably nicer spec but for a premium price" and, then "will my hands be tied at the mercy of the government in the long term?"
‘The Government Help To Buy’ scheme is a great opportunity for someone who cannot achieve the mortgage they require, whether this is because their salary does not equate to a high enough figure for the bank to work with, or like me, you may be having trouble trying to save a minimum 10% deposit. There are many positives when using the ‘Help to Buy’ such as the minimum deposit required is 5% rather than 10%, this means that rather than putting down a £30k minimum deposit on your £300k home, you would only have to put down £15k. Alongside this, in London, the government would help you by giving you an interest free loan of 40% of the property’s value for the first 5 years, so in short, you will only need to get a mortgage on 55% of the agreed sale price rather than getting the bank to lend you the full whack which may prove difficult if you aren’t earning a ridiculous salary or teaming up with a partner to buy your first home.
The negatives or ‘small print’ with this scheme are that after 5 years your ‘interest-free loan’ of 40% starts to bite back, if you have not sold the property or re-mortgaged the governments share into your name then you will start having to pay back this money. So on top of your mortgage, you will be paying another sum to the Government. In an ideal world, you would think, well in 5 years’ time, the property price would have gone up, I can sell and get some liquid out of my first home and move onto my next, right? Not as easy as that unfortunately, because the price that these new build schemes are selling for are somewhat above current market value by around 15/20%, so essentially in 5 years’ time, your new build will probably be worth in the current market, very similar money to what you bought it for 5 years ago. The other way around this is by re-mortgaging your new build home and buying the government’s 40% share a few years down the line (before your 5 years interest free is up) but again, you will be BUYING this share off the government so if your salary has not gone up since you bought the property originally, or you haven’t saved any extra cash, then this may prove to be a difficult task. Not to forget that you must live in your help to buy flat until you own 100%, you would not be able to rent it out, although this isn’t a first-time buyers priority, it’s nice to have that freedom.
My conclusion is that, if you can find a way to buy your first home without using ‘Help to buy’, even if that means getting a property that is not as ‘luxurious’ as the new build down the road, I think you will find that you will benefit from less stress, more freedom with your home and a better long-term investment. However if you are like many of us who simply cannot get to the outrageous figures that house prices have risen to, then ‘The Help to Buy’ is still a great way to give you your own space and get you on to the ladder quicker than you expected.