Through the government’s Help to Buy equity loan, buyers can borrow 20 per cent of the cost of a new build property from the government with no loan fees for the first five years of owning the home.
This means buyers only need a 5 per cent cash deposit and a 75 per cent mortgage to make up the rest. In London the government loan even amounts to 40 per cent.
The initiative has helped thousands of borrowers take their first steps onto the property ladder with 200,000 properties being bought via the scheme since it launched on April 1, 2013, according to data from the government.
But many of those who used the scheme in its first year are now facing higher fees, while those in the second year are facing fees for the first time.
While the government loan is free in the first five years, from year six buyers will be charged interest.
The initial 1.75 per cent then rises annually by the increase in the retail price index plus 1 per cent.
In the government's own calculations of a borrower with a £40,000 equity loan with an estimated RPI of 5 per cent, a consumer's yearly costs could increase from £12 in the first five years to £712, which then increases year-by-year, after the fee-free period.
The Mortgage Advice Club is urging advisers to start proactively talking to their Help to Buy clients.
Rob McCoy, senior product and business manager at TMA, said: "The Help to Buy scheme has undoubtedly been instrumental in helping many borrowers take their first steps onto the housing ladder.
"However, starting to repay the monthly interest on the equity loan after the initial five-year period is a detail often overlooked by many and we are increasingly beginning to hear that consumers don’t understand the implications of this."
Mr McCoy said he was encouraging advisers to contact clients who could be affected by this and stressed there were plenty of avenues borrowers could take to secure the best deal with this accumulation of interest.
Director at Furnely House, Kevin Dunn, agreed advisers should "absolutely" be talking to their clients about the implications of the extra fees.
Mr Dunn also said he had experienced many ‘second-steppers’ using the Help to Buy equity scheme buying property upwards of half a million pounds which means they could have borrowed more than £100,000 from the government.
He said: "It can be quite meaty payments, especially if you have a fair amount borrowed.
"It’s something advisers should be aware of and we should be looking at ways to do something to help the cost.
"For instance, many homes may have gone up in value to the point they could pay off the equity loan, some could remortgage or remortgage into one loan."
Dan White, of White Financial Services, said: "The equity loan from the government essentially works as a second charge on the property so such buyers face extra legal costs and a more complicated remortgaging system.
"Therefore it’s essential advisers explain the implication of this at the outset and again at the five-year mark."
Mr White also said he was worried there were many consumers who had bought through the Help to Buy scheme that had not received proper advice when they took out the loan as they had gone through the developer’s in-house service which he described as "sales advice".
According to Mr White, these buyers may not have been adequately told about the implications of these fees five years on.
Fears are also growing that the housing market may have become too reliant on Help to Buy as research from Project Etopia, a builder of modular homes, showed the scheme is responsible for up to 97 per cent of new build sales in areas such as Northampton.
Help to Buy is set to end in 2023 but will face new restrictions from 2012, when it will only be available to first-time buyers and be subject to regional price caps.
This story has been updated post publication to reflect that interest after year five does not amount to 1.75 per cent plus RPI plus 1 per cent but instead it is uprated by RPI plus 1 per cent.
imogen.tew@ft.com
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