Govt Help to Buy Scheme - Why the high prices

darkvader

We have been going through the entire process for a while now and were accepted for 20% Help to Buy Scheme.

Having gone through the lengthy Approval To Proceed document, there was a statement that caught my eye hence sharing with other potential Help To Buy folks.

The Govt very clearly states that the builder cannot provide discounts/price reduction/stamp duty that is more than 5% of the agreed purchase price. This was quite a surprise to me as it is not the builder who isnt ready to provide more discounts (which most of us never believed) but the fact that the Govt does not let them go above 5%!
The HTB scheme also asks for the actually listed price for sale by the builder to then calculate the incentive provided. So even if a reduction in price from listed value they cannot give more than 5%

Couple this with the survey done by the mortgage lender. In a row of 5 houses, 3 using Help to Buy, 1 using a normal mortgage and 1 cash buyer. We all know that cash buyers get the bigger discounts but this has changed since the Help To Buy Scheme was introduced. They cannot give a 15% reduction in price to the Cash Buyer while charging list price (or max 5% off) for others. The surveyor will find this out and clearly state that they will only lend close to the lower price paid by the cash buyer.

So they cannot reduce the price a lot for the cash buyer while charge list price for the FTB thus making even cash buyers lose out

Just wanted to state this as I havent found the discussion elsewhere on the board. But if you combine the restriction of not more than 5% incentives of any kind in total plus the surveyor's view of other house prices in the region, some builders are actualy right in charging FTBs and Second time buyers the actual list price with minimal incentives whether all cash, normal mortgage or HTB....completely crazy

Has anyone else come across this?

DV

mrginge

I think you are confusing the literal term of 'Help to buy' with the actual reality of 'Help to make fat profits for house builders'.

ging84

where did you get this information from
it's completely wrong
the developers are allowed to price their properties however they like, 5% off list price, 10% 15%, what every they want
the restriction is on the included incentives, they cannot talk you into paying the highest price by offering more than 5% worth of incentives, the government does not want to be paying 20% towards your carpets, your fridge freezer, your conveyancing and removal fees, that sort of thing.

brit1234

Its been shown on here a dozen of more times that the builders give less incentives for help to buy. They don't need to, its the lack of deposit pulling people at tax payers risk.

The scheme is for the builders not the buyer, that's what there party donations do.

How are you going to pay back the equity loan?

ging84

the equity loan does not need to be repaid for 25 years
so i assume by then, with bitcoins

blinko

help to buy is unfortunately going to be very expensive. Once interest rates rise paying 5-6% on a 90% (asssuming 5% paid off by the timet rates rise) is going to put a lot of pressure on house holds

gibs83

blinko wrote: »

help to buy is unfortunately going to be very expensive. Once interest rates rise paying 5-6% on a 90% (asssuming 5% paid off by the timet rates rise) is going to put a lot of pressure on house holds

wouldn't you would only pay 5-6% (or whatever it increases to) on 70% if you had paid 5% off as you only mortgaged 75% originally. The 20% I thought the govt loan is paid at a seperate rate after 5 years?

Can anyone clarify this. I am looking to buy my first property in approx 12 month time and thought help to buy would be the best way, it means being restricted to new builds but I presumed that interest deals are better initially and when they do rise, this only affects 75% mortgage as the 20% loan is on a seperate rate?? :mad: It's confusing!!

My thinking was this would be better as saving I could save up the loan amount over the first five year and then look at what mortgage rates are, what the property value is and what the rate of the outstanding loan is, and decide which is more cost effective to pay off after the five year?

blinko

correct, the interest only kicks in after 5 years on the government portion of the property at RPI+1.75%

my understanding is the only way around this is to remortgage for the ENTIRE amount at 5 years to avoid the government rate kicking in, although this could be lower than the interest rates offered by the bank. Although as I understand it this would mean selling the property back to yourself which would then realise a gain for the government portion of the property

I think further clarity is needed, also if you are planning to buy gibs83 you really need to Understand what you are buying!!! Lucky you having 12 months to do research

thedalmeny

I've personally got no problem with 'Help To Buy', i'm living in a brand new 4 bedroom detached house right now which i purchased through the scheme.

We reserved it the 2nd day the scheme had come in, allot of house builders sales agents didn't really know much about it since the government kind of sprang it on them. Initially they offered me nothing off, then when one of the 3-4 builders we were looking at offered me discounts they all started. We were only interested in one site though, thankfully playing them off against eachother work quite well.

We got the following throw in on the deal;

- 5-6% reduction in price
- Stamp duty paid by mortgage company
- Integrated Fridge / Freezer
- Carpets
- Turf

Looking at the landregistry, only one house of our type on the entire estate went for less than we paid and only by £3000. The rest went for £8000 or more than we paid.

I do think however we were lucky to reserve when we did, as many on here have experienced difficulty getting any reductions once builders saw what demand it had.

Personally we had around 15% available as deposit when we looked, Help To Buy made most sense due to the mortage rates. Wife wanted a new build anyway and we've actually saved quite a considerable amount over what we could of gotten not using the scheme.

We plan to pay half of the 20% loan provided within 2-3 years and then remortgage the other half.

gibs83

blinko wrote: »

correct, the interest only kicks in after 5 years on the government portion of the property at RPI+1.75%

my understanding is the only way around this is to remortgage for the ENTIRE amount at 5 years to avoid the government rate kicking in, although this could be lower than the interest rates offered by the bank. Although as I understand it this would mean selling the property back to yourself which would then realise a gain for the government portion of the property

I think further clarity is needed, also if you are planning to buy gibs83 you really need to Understand what you are buying!!! Lucky you having 12 months to do research

Thanks, yes I am trying to research it until then as a lot of people say its a deal to benefit builders not buyers, which I can understand but for people with 5% deposits it could still make financial sense (to me anyway!) to buy a new build as a interest free loan + mortgage at approx 3% over a 95% mortgage on existing building (which may be cheaper) at approx 5% interest.

My understanding was that the interest starts at 1.75% yr 6 and rises at RPI+1% per year after. That would mean this loan would likely be less that any mortgage interest deal for a good number of years after so we would be better paying off the amount of loan we had saved into our mortgage. When it gets to the point that the loan interest becomes a higher % than the mortgage interest, we would look to re-mortgage to include the loan (and would have enough equity to do this due to the lump sum we had earlier paid off the mortgage). But I guess this all depends on what the property is worth, the rate in which the equity loan interest increases and the rates of mortgage deals at the time. Hopefully I am on the right tracks with this!!

gibs83

thedalmeny wrote: »

I've personally got no problem with 'Help To Buy', i'm living in a brand new 4 bedroom detached house right now which i purchased through the scheme.

We reserved it the 2nd day the scheme had come in, allot of house builders sales agents didn't really know much about it since the government kind of sprang it on them. Initially they offered me nothing off, then when one of the 3-4 builders we were looking at offered me discounts they all started. We were only interested in one site though, thankfully playing them off against eachother work quite well.

We got the following throw in on the deal;

- 5-6% reduction in price
- Stamp duty paid by mortgage company
- Integrated Fridge / Freezer
- Carpets
- Turf

Looking at the landregistry, only one house of our type on the entire estate went for less than we paid and only by £3000. The rest went for £8000 or more than we paid.

I do think however we were lucky to reserve when we did, as many on here have experienced difficulty getting any reductions once builders saw what demand it had.

Personally we had around 15% available as deposit when we looked, Help To Buy made most sense due to the mortage rates. Wife wanted a new build anyway and we've actually saved quite a considerable amount over what we could of gotten no using the scheme.

We plan to pay half of the 20% loan provided within 2-3 years and then remortgage the other half.

thats sort of my thinking around it regarding interest rates that are offered.

I was also thinking if the housing market did crash again in a few year, the amount I would owe the govt loan would be less (as its 20% of the current market value that you pay back at the time) so that would be a good time to pay the loan off.