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Advisers urged not to ignore Help to Buy alternatives – analysis

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  • 29/05/2019
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Intermediaries need to ensure first-time buyers are aware of all of their borrowing options, beyond simply Help to Buy, industry figures have argued.

The Help to Buy scheme has become a dominant force when it comes to purchasing new homes according to new research from modular housebuilder Project Etopia.

It found that in Northampton last year a massive 97 per cent of new build sales went through thanks to the Help to Buy: equity loan scheme, with areas like Burnley, Derby and Warrington also seeing the scheme account for a large percentage of new build transactions.

But it warned that there is a danger that when the scheme ends “the rug could be pulled out from beneath those areas that have to rely on Help to Buy”.

It follows data from the government last month that one thousand homes a week were purchased using the scheme in 2018, up by 12 per cent from the previous year.

Always discuss alternatives

Stuart Powell, managing director of Ocean Mortgages, said that he has always been cautious about the scheme as there are so many unknowns, such as what the rent will be after the initial period finishes and whether there will be a variety of deals available for the borrower once their first deal comes to an end.

He continued: “When speaking to first-time buyers, I will always discuss alternatives to Help to Buy in a similar way to I discuss alternatives to equity release with older clients. For example there are good 95% mortgage deals on the market, and parental contributions could be a better way to enter the property market than Help to Buy.”

TMA Club has called on brokers to be proactive in contacting their existing clients that are already on Help to Buy deals to discuss alternatives ahead of them starting to have to pay back the equity loan.

Rob McCoy, senior product and business manager at TMA, said that while the scheme has “undoubtedly been instrumental” in helping people get onto the housing ladder, the need to start repaying the equity loan after the initial five-year period is a “detail often overlooked” by borrowers.

He added: “Uncertainty on next steps needn’t be a problem – there are plenty of avenues that borrowers can take to secure the best deal with this accumulation of interest. It’s in an adviser’s best interest to ensure their clients are well-advised to take the best possible route for them and their circumstances.”

Intermediaries add real value to Help to Buy deals

Greg Cunnington, director of lender relationships and new homes at Alexander Hall, noted that Help to Buy had been a “strong growth area of purchase business”, as has new build in general, pointing out that it has been a real boost for those buyers who are unable to rely on the bank of mum and dad.

Cunnington also emphasised that intermediaries can add huge value to a borrower tempted by Help to Buy, highlighting that around 90 per cent of all Help to Buy deals to date have gone through via a broker.

He explained: “Clients will often know the basics but will not have an understanding of the detail on the scheme itself, or that there is both a mortgage and a Help to Buy application process involved. An intermediary can add real value to these clients by offering thorough advice on all elements of the Help to Buy scheme and process.

“This should also include how to staircase or how to remortgage away from the scheme when possible and what happens when the interest free period ends.”

Too reliant

Powell warned that while independent advisers could give borrowers a full run through of their options, this may not be the case for all buyers.

He said:Is a first-time buyer who visits a new development, and visits their tied mortgage adviser, informed about all the alternative mortgage options available to them?”

“Help to Buy has provided an alternative for first-time buyers and undoubtedly helped the property market but some house builders appear to have become too reliant on it,” he concluded.

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