Help To Buy Timebomb

ggaz1978

We are moving house and are looking at the help to buy scheme, after looking at the terms and conditions it looks very expensive but having spoken to 3 people who have recently moved, 2 of them were completely unaware that the equity rises therefore when paying off the loan. You pay the percentage borrowed not the original amount. They say but its interest free for 5 years not realising the percentage is rising with house prices, furthermore after 5 years you only pay interest on help to buy and no capital repayments. I don`t think brokers are making people fully aware of the risk and extra burden they are taking on. My friends house has gone from £178k to £238k in 2 years using £36k in help to buy he now owes £47k and he didn`t even realise this was increasing.

It would be interesting to see how big this problem is because potentially those who are struggling to buy a house are going to get a big shock that they can no longer afford in the future and its all government sponsored.

Caz3121

Sounds like your friend did not do the due diligence before accepting. All the information is readily available and not hidden
https://www.helptobuy.gov.uk/equity-loan/equity-loans/

kingstreet

ggaz1978 wrote: »

I don`t think brokers are making people fully aware of the risk and extra burden they are taking on

As you appear to be suggesting I'm not doing my job, I am.

We explain the equity loan is based on the future value of the property and if the property value falls, you repay less and if it rises, you repay more.

We provide copies of the buyer's guide at least three times before an application is submitted. A further copy is issued with the Authority To Proceed by the HTB Agent along with Personal Worked Example of how the scheme works.

Finally, the solicitor acing for the buyer again explains the scheme workings before exchange of contracts.

Paying away 20% f the increased value of a property still means the buyer keeps 80% of the growth.

Thrugelmir

ggaz1978 wrote: »

My friends house has gone from £178k to £238k in 2 years using £36k in help to buy he now owes £47k and he didn`t even realise this was increasing.

What's wrong with that. The money has been borrowed interest free. So why should they gain at the expense of the taxpayer. If the value falls so does the amount the Government (taxpayer) recovers.

Without the scheme could they have even bought the property?

kingstreet

ggaz1978 wrote: »

We are moving house and are looking at the help to buy scheme, after looking at the terms and conditions it looks very expensive but having spoken to 3 people who have recently moved, 2 of them were completely unaware that the equity rises therefore when paying off the loan. You pay the percentage borrowed not the original amount. They say but its interest free for 5 years not realising the percentage is rising with house prices, furthermore after 5 years you only pay interest on help to buy and no capital repayments. I don`t think brokers are making people fully aware of the risk and extra burden they are taking on. My friends house has gone from £178k to £238k in 2 years using £36k in help to buy he now owes £47k and he didn`t even realise this was increasing.

It would be interesting to see how big this problem is because potentially those who are struggling to buy a house are going to get a big shock that they can no longer afford in the future and its all government sponsored.

If your friend's debt has increased by £12,000, that is because his/her home has increased in value by £60,000. Leaving them £48,000 better off.

Yes, they could have gone for a 95% mortgage and paid a higher rate/payments and benefitted from all the price growth. However, they didn't, they chose a lower rate and lower payments.

I still don't see how they've lost here...?

ggaz1978

Increased equity is a red herring if people are struggling to buy houses now, then increased house prices will make it harder to remortgage to repay the debt. Furthermore your house going up is no comfort as all the other houses go up accordingly so your back to square one.

I agree information is out there but my broker made no reference to it during our application either.

Thrugelmir

ggaz1978 wrote: »

Increased equity is a red herring if people are struggling to buy houses now, then increased house prices will make it harder to remortgage to repay the debt. Furthermore your house going up is no comfort as all the other houses go up accordingly so your back to square one.

I agree information is out there but my broker made no reference to it during our application either.

Remortgaging is a red herring. That's not always going to be better deals. Rising interest rates would have a far larger impact. People have to take responsibility for their own actions and how they choose to run their lives.

Octaben

Whether or not your broker explained things fully when you went through the application, you were definitely sent a guide explaining how it all works when your Authority to Proceed was issued, along with a break down of exactly what the costs would look like

Unfortunately if people choose not to read the paperwork then that is down to them and blaming your broker or anyone else is a little silly

getmore4less

Any scheme where you only buy part of a house because you can't afford a full one has similar issues and can become a trap.

You need to know the exit plan, this means increasing income or cash injections to get to affording a full house.

then understanding the restriction on exit, like can you sell to anyone or are there restrictions who pays the costs on shared equity based scheme when you want to own more etc.

Rising prices do not get you out of the exit traps. the only way to get to affording a whole place is rearm more or get a windfall.

in most schemes where the house price inflation is same or higher than the mortgage rates it costs more.

minimike2

People have a tendency to "forget" things that they are told when they make their application because at the time all they are o̶b̶s̶e̶s̶s̶e̶d̶ interested with is getting that house they are desperate for. Many people put very little consideration in and only later think about it and then "forget" what they were told when they applied.

That said, I disagree with the HTB Equity scheme for the simple reason it is yet another tool which is causing artificial house price inflation. The next crash is going to be spectacular in London. What the effect will be where I live goodness only knows - We haven't recovered from 2008 yet.

The guarantee scheme I think works well and I think it should stop there.

Polaris49

There is plenty of information before you take it out. And all the paperwork you have to sign clearly states exactly what you're signing up for and even breaks down examples for future pricing and loan amounts.
I have just been through it. My broker did go through everything with me though.


They clearly didnt actually read anything they signed?