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To Help to Buy or not to Help to Buy

This article is part of
Guide to Help to Buy Mortgages

Paul Smee, director general of the CML, has raised concerns about the government’s exit strategy when Help to Buy is due to come to an end after three years.

Recalling the effects of the stamp duty holiday which ended in March 2012, Mr Smee warned schemes which end in a cliff edge “distort the market and tend to create a bubble on one side and a desert on the other.”

While all the pros and cons will only become clear once all the detail of the guarantee element of the scheme is made available later this year, at the time of writing the benefits are:

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• allowing people to buy a new home with a relatively small deposit;

• allowing people to buy a larger property than they otherwise would have been able to afford; and

• there is no restriction on what people earn to be eligible for the scheme.

Clear disbenefits or considerations that must be taken into account - specifically in relation to the equity loan element of the scheme that is already in operation - are:

• people may not realise they will have to repay the loan - they are not simply having their deposit boosted;

• the government takes 20 per cent of any growth in the value of the property until the loan has been paid back;

• the loan is restricted to new-build properties and only from participating developments, according to Mark Bullard, head of sales at NatWest Intermediary Solutions;

• new build properties carry an additional premium on the sale and it is relatively common in particular sectors or locations for there to be a reduction in value;

• buying a property using the Help to Buy scheme is likely to be more suitable for people who expect to stay in the property for a number of years, rather than those who plan to move soon;

• agreement has to be sought from the HomeBuy Agent before the property can be sold; and

• if house prices don’t rise, or if they fall, there may not be enough money from the sale of the property to repay the mortgage.

If the outstanding mortgage debt is greater than the value of the home, this is called “negative equity” and could make it difficult to move or remortgage unless owners are able to meet the shortfall from savings or other sources. However, this is a risk of all high loan-to-value mortgages.