'The one thing everyone needs to know about the new Help to Buy...' blog discussion 8 October 2013 at 6:07PM in Martin's blogs & appearances & MoneySavingExpert in the news 5 replies 2.2K views

Former_MSE_Helen

This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.

Read Martin's "The one thing everyone needs to know about the new Help to Buy scheme" Blog.

Please click 'post reply' to discuss below.

wantsajob

Housing bubble! I'm sure the scheme will help some, but it will always be a supply/demand issue. Increasing demand through this scheme will simply increase asking prices - vendors will have a good idea who might be using the scheme and will up their expectations. Once the scheme is over, those who bought in will have a house worth less than what they overstretched themselves to buy. Interest rates will rise, and people won't be able to afford their repayments, and banks will be left with loads of houses they've repossessed worth far less than they were under this scheme.

JimmyTheWig

Does it make a difference if you get repossessed and the bank sell at a shortfall? E.g.
Buy a house for £200,000 with a 5% deposit of £10,000. So you get a mortgage of £190,000.
The government covers the lender for a further 15% (£30,000).

Your situation changes and you can't pay your mortgage.
Bank repossesses your house and sells it for £180,000.
There's a £10,000 shortfall that is covered by the government.

If it wasn't Help to Buy then the bank would chase you for this £10,000.
Are you still chased for this shortfall with Help to Buy?
If so, by who - the bank or the government?

spikyone

If you have only got a 5% deposit and have worked out that getting a mortgage is right for you...

The only correct end to that sentence is "then you're wrong". Some simple maths - assume a bank will lend you three times your salary (I use this number deliberately even though banks may lend more). A 10% deposit is then equivalent to four months' salary.

If you can only scrape together 2 months' worth of salary as a deposit, how will you pay a mortgage when BoE base rate is back at 5% or more? Martin only blogged about that last week.

The one thing everyone needs to know about Help to Buy is that it's an utterly terrible idea. Save for a deposit like your parents did.

JimmyTheWig

spikyone wrote: »

If you can only scrape together 2 months' worth of salary as a deposit, how will you pay a mortgage when BoE base rate is back at 5% or more?

It depends on how much rent someone is paying while trying to save for the deposit.
An increase in base rate to reasonable historic levels might still leave their mortgage payments no more than their current rent.
Or they might go for a long-term fixed rate deal, in which case it wouldn't matter what happened to the base rate.

spikyone

JimmyTheWig wrote: »

It depends on how much rent someone is paying while trying to save for the deposit.
An increase in base rate to reasonable historic levels might still leave their mortgage payments no more than their current rent.

You're assuming that all buyers will pay less in rent than on a mortgage - not necessarily true, since low deposit equals higher interest rate, and in certain parts of the country renting is cheaper regardless. Besides which, a renter has no maintenance costs associated with their home, and a boiler going wrong is likely to cost far more than any potential saving.

Or they might go for a long-term fixed rate deal, in which case it wouldn't matter what happened to the base rate.

In which case they are even more likely to be paying a similar amount on a mortgage to their rental payments, since fixes attract a higher rate and the longer the fix, the higher the rate. And what happens at the end of the fix, when base rate has gone up?

I stand by my comments - if all you can save is 2 months' salary, you either don't have the means or you don't have the financial management skills to be buying a house. The government shouldn't be supporting people in that situation, particularly at the risk of causing a house price bubble that will make it ever-harder for FTBs.