Is the ‘Help-to-Buy’ scheme the next mis-selling scandal?
Over the past few years many homeowners that struggled to make it on to the housing ladder, looked towards the ‘Help-to-Buy’ scheme as a way out of the rental cycle. Years of being hit by rising rents to the increases in the cost of living, at the same time trying to reach a moving target of a minimum 5% deposit before turning the dream of becoming a homeowner into reality.
With increasing occurrence in recent months homeowners who were sold the ‘Help-to-Buy’ scheme are coming to the realisation they have entered into an agreement with the ‘Devil,’ Believing that after the initial 5 years interest free period, it would then revert to an affordable repayment loan with low interest, this is not the case.
Even the savviest homeowners appear slightly confused once the details are explained, you do then have to question if the mortgage advice given at the time was clear, fair, and not misleading.
Who could have known house prices would rise by an average of 23% in the last 5 years? But how will this impact the homeowner? firstly I’m struggling to think of an investment repayment vehicle that would not only give a return to repay the capital but also provide enough capital growth to meet interest payments of 1.75% which will go up each year by the Consumer Price Index, plus 2% each year after and any fees that would be due, there is also the potential for the outstanding loan to rise significantly as this is not fixed.
The punches keep coming.
‘Help-to-Buy’ homeowners may have struggled through the pandemic incurring some debt, only to realise that while most homeowners without a ‘Help-to-Buy’ scheme and the affordability have the option to capital raise to consolidate debt by taking out a second charge mortgage, those unfortunate souls who have been caught up in the web of uncertainty when a new product is launched do not have that luxury. Not to mention a straightforward re-mortgage may not be so straight forward.
Need more space? Do you improve by building an extension? You may need permission to make alterations, increasing the value of the home and thus value of the property. Do you really want to inflate the value of your home? Want to take a secured loan to create that additional space? You will likely find the computer with say “no.”
Do you move? Remember 20% of the gain and ‘Help-to-Buy’ scheme loan, needs to be repaid, will the dream of moving to a bigger home for a growing family evaporate when the realisation that entering into this agreement is more of a millstone round your neck than you had ever dreamed. Even if you repay the scheme, you may also be kissing goodbye to a lower ‘Loan to Value’ and thus may pay slightly higher interest rates on your next mortgage.
So, you’re 5 years in to your ‘Help-to-buy’ scheme, only to discover, that the interest free period was not so generous and you now have 20 years to plan your next house move, or come up with some miracle plan to repay the ‘Help-to-Buy’ scheme and you thought raising a 5% deposit was hard, try paying back a minimum of 10% of the market value.
With rising interest rates do you, make capital repayments off your mortgage or reduce your ‘Help-to-Buy’ scheme loan?
The amount you repay is not fixed; we predicted the galloping inflation we are now experiencing. We predicted the collapse in Bitcoin, and we are also predicting a collapse in the housing market. What a fantastic opportunity to get your ducks in a row ready to repay this awful scheme, which deserves no better place alongside yet another awful product, you guessed it ‘Equity Release.’
The realisation by the ‘House of Lords’ committee, published in January 2022, suggested that buyers would have been in a better position had the scheme not been introduced. The Financial Conduct Authority also suggested that those using ‘Help-to-Buy’ are at greater risk of falling into negative equity if property prices start to fall.