The help to buy scheme launched back in 2013 and 6 years on there are a few great things about it and a few not so great things about it. Below are the pros and cons of the help to buy scheme.
The pros of the help to buy scheme:
- The help to buy equity loan scheme makes getting a mortgage more affordable for many first time buyers in the short term. This means first-time buyers can get on the property ladder quicker
- The help to buy scheme is available for first-time buyers and homeowners who want to move homes.
- You may be able to use the increased value of your home to pay off your help to buy equity mortgage when remortgaging
- You get a 5-year interest-free loan which you could pay off before you are eligible for any interest
- The help to buy equity loan increases your mortgage affordability by reducing your loan to value, this opens you to more competitive mortgages.
- The help to buy equity loan allows you to pay a relatively low mortgage deposit
- The help to buy equity loan might be better value than taking out a comparable 95% mortgage
- You have 25 years before you will need to repay the loan in full
- You will legally own 100% of the home but the help to buy equity loan will have a second charge on your home
- There is no maximum amount of household income when applying for the help to buy equity loan
- The maximum cap on property prices is £600,000
- In the case of the help to buy ISA the interest earned is tax-free
- If you are buying as a couple you can both use a help to buy ISA and get a combined government bonus of £6,000
- In the case of help to buy ISAs there are many help to buy ISAs offering competitive rates.
- You can combine the help to buy ISA with any other first-time buyer government scheme
The cons of the help to buy scheme
- The help to buy scheme insists on buying new build properties which could be 10% to 20% overvalue at sale
- Not a lot of mortgage lenders offer a help to buy mortgage which makes it somewhat of an expensive product. The homes and community agency which runs the help to buy scheme has enforced a new directive which means that there is a cap of 4.8% on help to buy mortgages. This may, however, reduce the number of mortgage lenders offering the product.
- Remortgaging with a help to buy equity loan can be difficult as most mortgage lenders will require you pay off the help to buy mortgage before they offer you a remortgage
- The Help to buy agency will benefit from any growth in the value of your home when you sell your help to buy property
- Inflation could push the cost of your help to buy equity loan up by a significant amount
- The affordability criteria for a help to buy mortgage is very strict as the mortgage lender will have to ensure you can afford a mortgage with your help to buy equity loan if the rates rise.
- If you take the full 25-year term to repay the help to buy equity loan it will be incredibly expensive.
- You will find it hard to get further lines of credit such as personal loans etc due to having a help to buy equity loan and a mortgage to repay monthly (after 5 years in the case of the help to buy equity loan)
- The help to buy equity loan is only available for homes which are less than £600,000
- In the case of a help to buy ISA you cannot use your government bonus towards your mortgage deposit as you only receive it after completing on your property purchase.
- The help to buy scheme will likely end in 2023 as announced by the government
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.