Mortgage broker Private Finance’s research looked at 51 local authorities where 100 or more Help to Buy equity loans have been completed each year since the scheme’s introduction in 2013, and found that Greenwich homeowners have in that period seen the value of their homes rise the most relative to the original loan amount.
On average, first-time buyer (FTB) prices in Greenwich have risen 61% from £221,852 to £357,710. When applied to the original loan amount to estimate the repayment figure, the rate of house price growth increases the average equity repayment amount from the original £27,082 to £43,666.
Despite the larger repayment sizes, however, Greenwich borrowers could repay their equity loan debt and still benefit from an average £92,192 in capital gains – notwithstanding further gains made via mortgage repayments.
Meanwhile, Help to Buy borrowers in Wokingham have an average of £72,631 in equity once their loan is repaid, while borrowers in Bristol have £60,232.
Shaun Church, director at Private Finance, (pictured) commented: “The early adopters of the Help to Buy equity loan scheme will begin incurring interest on their equity loans next year, which may prompt some to consider moving on and repaying their equity loan.”
However, other areas have seen minimal house price growth and now face equity loan repayments that outstrip potential capital gains.
According to Private Finance, nine of the ten areas best positioned to repay their equity loans and make capital gains are in the South of England.
For instance, Stockton-on-Tees has seen FTB house prices rise 12% from £102,409 in 2013 to £114,265. With the equity loan rising from the original £26,679 to £29,767, that leaves borrowers in the area with a repayment that is £17,911 larger than their capital gains.
Similarly, County Durham is facing repayments £17,140 larger than capital gains, Rochdale by £11,503, Barnsley by £8,895 and Wolverhampton by £8,313.
In total, seven of the ten areas which saw average equity loans outstripping house price growth between 2013-17 are situated in the North of England, and all are outside of the South.
Church continued: “Across the regions, some stand to make significant gains thanks to rising house prices, which can cover the equity loan and leave more to invest in a new property purchase. However, others haven’t fared as well, with a slower rate of house price growth in the North meaning borrowers in this part of the country are at greater risk of their repayment loans outweighing their capital gains.”
“For those staying put, remortgaging a Help to Buy deal is more complicated than a standard remortgage. Product choice is still fairly limited, with many lenders not supporting remortgages for these types of loans. Many offers can only be secured via products exclusive to brokers. Expert advice is also crucial to ensure borrowers can balance the dual costs of repaying their mortgage and equity loan interest,” Church added.
Dearth of lending
Mortgage Solutions has previously reported on the difficulties faced by borrowers in the sectors. Indeed, according to Moneyfacts, there are currently only four lenders in the market who offer Help to Buy remortgage products.
The Help to Buy scheme was launched in April 2013, and allows aspiring homeowners to borrow up to 20% of the cost of the property (or 40% in London), with the rest made up of commercial loans and cash deposit.
After five years, the government begins to charge interest on its portion of the loan – meaning that the first wave of Help to Buy borrowers will start being charged interest from next year.
On the sixth year of the loan, 1.75% will be charged, which rises each year thereafter by the increase – if any – in the Retail Price Index (RPI) of inflation plus 1%.
At repayment, borrowers pay off 20% of property value at sale (as opposed to the original loan).
According to the latest official data from the Department for Communities and Local Government (DCLG), 134,558 properties were bought with an equity loan from the scheme’s launch to 30 June 2017 – with a total value of these loans reaching £6.72bn, and with the total value of the properties sold under the scheme totalling £32.37bn.