A number of lenders are now offering Help to Buy purchase mortgages, but not as many are offering remortgages.
We asked this week’s Marketwatch panel if the scheme has worked out as well as hoped and what the future looks like for these borrowers.
When announced in 2013, the Help to Buy scheme was met with mixed, but mostly positive views from those in the industry.
For many homeowners who have participated in the equity loan scheme it has been seen as nothing but a success in enabling them to own their home.
We do however now find ourselves in unknown territory with the five-year anniversary now either surpassed or soon to arrive for some of the early participants.
These borrowers will now, or shortly, be paying interest for their equity loan and, although it is seen as a relatively low interest rate in the current climate, it could cause affordability issues for some.
Hopefully good advice and planning at the outset will have given these borrowers the information and knowledge to make the necessary preparations.
However, it is perhaps also the responsibility of the lenders and advisers alike to assist where they can when this time comes.
The initial take-up for the Help to Buy equity loan scheme was very positive and for many, when the interest is to start on the equity loan it will be an ideal opportunity to review their ability to repay this.
A good understanding of the borrower’s needs and financial position will be paramount in the advice given in this regard.
Hopefully lenders will start to address the help to buy remortgage market in earnest and consider the needs of these customers now looking for the best way forward relevant to their circumstances.
The initial rate on the Help to Buy equity loan, once it is due, is pretty low at 1.75% – but after the sixth year, it increases by 1% plus any increase in the retail price index (RPI) every year.
So even if the RPI falls, the government loan will still increase by at least 1%.
Then there is the fact that if house prices fall, borrowers could even find that their loan to value (LTV) actually increases, making it much more difficult to move or remortgage.
Plus, not all lenders will lend on Help to Buy, so borrowers may find their options are restricted when they reach the end of their initial deal.
The other slight bugbear is that if the value of the property goes up, the borrower has to give 20% of that increase to the government – even if it was as a result of home improvements they’ve made and paid for themselves.
But on balance, I think the Help to Buy scheme has been worth it. So far it has helped around 160,000 people purchase their first home, many of whom would never have been able to otherwise.
So even with the Help to Buy loan becoming due, most first-time buyers are going to be far better off having used the scheme than if they hadn’t.
I think it’s safe to say that Help to Buy has been a huge success, it’s allowed thousands of people to get onto the property ladder who would otherwise have been priced out of the market due to deposit demands on new builds.
We are now five years on and those people who got on board at the start are probably looking at how much equity they’ve gained and are feeling rather smug.
Help to Buy has a few downsides, I personally feel it should only have been offered to first-time buyers and the limit outside of London should have been lower than the £600k limit.
We’ve seen buyers use the scheme to bypass one rung of the property ladder, which they’d not be able to do if it was for the sole use of first-time buyers.
The only other downside is that in my view the whole deck of cards that is the UK housing economy is now built on Help to Buy so it’s going to be difficult to wean people off it without the cards collapsing.
The problems that we see time and time again is that the Homes England is in complete turmoil regarding the valuation processing and timings.
This turns a simple transaction into months and months of waiting and chasing.
The other bit of logic I find hard to fathom is that there are still lenders that will lend on a Help to Buy purchase, but won’t accept a Help to Buy remortgage or allow them to raise money to buy it out or will restrict the LTV.
Some lenders are better than others, but in my view, none of the big players in the industry have been innovative enough in this area.