Help to Buy 'timebomb' as five-year anniversary looms

Help to Buy 'timebomb' as five-year anniversary looms

Thousands of those who used the government's Help to Buy mortgage scheme could be hit with expensive fees on their loans, as they come to the end of their five-year interest free period in the next few months.

The equity loan scheme, which is just about to reach its five-year anniversary, allowed buyers to make use of a five-year interest-free loan from the government of up to 20 per cent of the value of a property so that they could get on the housing ladder.

Now as these loans mature, customers will need to start paying rising fees on these equity loans or come up with another plan.

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After five years is up, borrowers must pay a fee of 1.75 per cent of the value of their loan, increasing each year by RPI plus 1 per cent, unless they can pay the loan off, usually by remortgaging.

The Help to Buy scheme only applied to newbuild homes, and mortgage brokers and other experts are warning that customers may be left paying expensive fees if they do not have the equity left in their homes to remortgage, especially since newbuild homes don’t always increase in value at the same speed as other homes.

“It’s going to be a very big problem,” said Bob Riach from Riach Financial Advisers. “I told people to avoid these schemes, but those who did will struggle, especially where newbuilds have been overpriced.”

He said he had already had one client in this situation, where the couple wanted to sell a Help to Buy property because of a divorce.

“In that case there was just enough equity, but it won’t always be the case, and there was nothing left,” he said.

Thinktank the Resolution Foundation said the loans were “a ticking timebomb”.

The group calculated those who used Help to Buy back in 2013 will pay an average of £652 this year on their loan if they live outside London or £927 if they live in the capital.

Few lenders offered Help to Buy mortgages, with Mr Riach saying that most Help to Buy customers have mortgages with Nationwide and Halifax.

“I don’t see that it is really the lenders’ problem to do anything about it though,” he added.

“People can remortgage if they have the equity, but not if they haven’t.”

So far there have been few mortgage products made available aimed at those with Help to Buy mortgages that they need to remortgage or pay expensive fees.

However, there are some signs of movement, with Ipswich Building Society introducing a new ex-Help to Buy remortgage offering late last month.

The society said that all of its products  will be available to Help to Buy applicants, at up to 95 per cent LTV, and its standard mortgage assessment and affordability calculation, through its manual underwriting process, will apply.

“We are pleased that we can help borrowers moving away from a Help to Buy mortgage and through our expert manual underwriting we’ll continue to specialise in real mortgages for real people, who have unusual or complex occupations and find themselves categorised as ‘mortgage misfits’, otherwise ignored by other high-street lenders,” Richard Norrington, CEO, Ipswich Building Society, said.