Help to Buy Scheme

I know very little and I'm just starting to research as I am really wanting to get on the property ladder and whilst I am pouring all spare cash into savings, I'm still a long way away from the normal 10% deposits.

Can we please discuss pros and cons of this?

(I know Scotland has slightly different schemes).

One hurdle out of the way is at least I am a permanent resident!

We're looking into it (for the new build option, not the 95% guarantee option). We'd prefer to buy an existing property as they're cheaper than new builds, but depending on what we find we may end up with a new build.

As I see it, from a personal perspective...

PROS:
- Can get a property with 5% deposit, which is still quite a big sum here in the south east
- The 20% equity share from the government is interest-free for 5 years, then 1.75% for the 6th year, then it rises after that. Still, "free" money for 5 years, essentially.
- Having 25% deposit available means you can get lower interest rates and therefore afford a bigger mortgage/house price or have more money available to pay down the mortgage/20% loan quicker
- The 20% loan is an equity share, so if your house drops in value, the amount you owe back for the 20% drops too (not sure what happens if this occurs while you're paying it off, though...say the original 20% value is £30k and you've already paid off £25k, what happens if your house drops in value and 20% is now only £20k? Somehow I can't see the gov't handing you £5k back.)

CONS:
- The 20% stake goes up when your property value does. So if you initially have a balance of £20k to buy the place and the property's value goes up 10%, you now owe £22k to the government.
- Only certain lenders/home developers work with the scheme
- New builds are significantly more expensive than existing houses.

From a more general taxpayer perspective, I think it's mostly CONs. The scheme encourages house prices to rise as more people can afford larger mortgages - that doesn't necessarily make it any easier to get on the property ladder. And guaranteeing someone's mortgage with taxpayer money (for the 95% mortgage eligibility part that's just kicked in) seems like madness to me.

Interesting EN, thanks!

I am kind of put off by the fact the Scotland scheme is just for new builds - for a wide variety of reasons, but at the same time, it all seems a bit tempting too..... 

I am kind of put off by the fact the Scotland scheme is just for new builds - for a wide variety of reasons, but at the same time, it all seems a bit tempting too..... 

Yeah, we went to look at a new build development and it is all very shiny and new, and obviously built for modern living (good sized kitchen, lots of light, sensible layouts, etc). I don't know that we'd go with that development even if we do opt for a new build just because they seem like PITA to work with - they sell you the house itself for £X, but then everything else is add-ons (flooring, exterior lights, etc) and they won't tell me how much those things would be. They claim "oh each house is worth £X no matter what flooring you put in" but that sounds BS-y to me. If you install super nice flooring the house is going to be worth more than if you put in really cheap vinyl/carpet. </rant>

Thanks for starting this thread. We know we can't afford a mortgage in the near future, being as just arrived here, but it's something we're working toward, and if there's a way to buy sooner, we'd definitely like to know more about it.

I'd contact a mortgage broker in your area.  They will deal with all loans available versus a particular lender.  And it's no cost to you.  We were considering moving and the guy I contacted found two banks willing to loan to me even though I do not have ILR. 

They claim "oh each house is worth £X no matter what flooring you put in" but that sounds BS-y to me. If you install super nice flooring the house is going to be worth more than if you put in really cheap vinyl/carpet. </rant>

That seems BSy to me as well.... 

I'd consider space / size of the property and light as well  - new builds often lack these in enough supply.

http://www.architecture.com/HomeWise/News/ShamefulShoeboxHomes.aspx

http://www.withoutspaceandlight.com/

ETA: http://www.architecture.com/HomeWise/Home.aspx

I'd consider space / size of the property and light as well  - new builds often lack these in enough supply
 

Luckily Scotland has different laws than England and each new build home has much more space than England -    
There's been tons of new build around here - and friends live in them -and I rented one - and currently rent a room in one (well all not really new anymore, 5-8 years old now)  and I've never seen one that's been extraordinarily tiny -  the new ones aren't too bad either. But I hate seeing nice farmland cut for homes. But on the other hand, I know that people need places to live!!

Hi,

The help to buy scheme 'seems' like a good idea at first, however I think it's bit of a red herring overall. The danger is it'll fuel more inflated asking prices for already way beyond insanely priced property in the UK. That then leads to the increased danger of a property pricing crash in the future - as mentioned by equestiannerd. As buying a house is a long term investment then the associated risks when doing/taking some riskier lending 'schemes' becomes more apparent. If there is a bit of a pricing correction (or a more of a severe one!) then there's a risk of negative equity again and that in turn means people might just try to walk away without paying back etc. This is essentially what happened recently with the economic slowdown (amongst other aspects too)

I think the help to buy scheme will work for those in very very strong jobs or businesses with good cashflow as they'd be able to better absorb any longer term issues with paying back the loan if things do change for the worse later.

Will be interesting to see how this scheme pans out over time!

Cheers, DtM! West London & Slough UK!

Hi,

The help to buy scheme 'seems' like a good idea at first, however I think it's bit of a red herring overall. The danger is it'll fuel more inflated asking prices for already way beyond insanely priced property in the UK. That then leads to the increased danger of a property pricing crash in the future - as mentioned by equestiannerd. As buying a house is a long term investment then the associated risks when doing/taking some riskier lending 'schemes' becomes more apparent. If there is a bit of a pricing correction (or a more of a severe one!) then there's a risk of negative equity again and that in turn means people might just try to walk away without paying back etc. This is essentially what happened recently with the economic slowdown (amongst other aspects too)

I think the help to buy scheme will work for those in very very strong jobs or businesses with good cashflow as they'd be able to better absorb any longer term issues with paying back the loan if things do change for the worse later.

Will be interesting to see how this scheme pans out over time!

Cheers, DtM! West London & Slough UK!

I have actually been waiting on you to respond to this. And I mean that as a complement. I often think about these financial things, "I wonder what Dennis will say".

Hi SonofSailor,

Cheers for the compliment!

I know we have different views on a few things, but that's a part of life! Someone else with a different take on the same issue/topic might say something completely different!

Of course, my views may well turn out not to be the case, only time will tell

Whats your take on the help to buy scheme ?!

Cheers, DtM! West London & Slough UK!

HI OP-

I bought my house in 2012 on the FirstBuy scheme which I think is similar to HTB.

Older houses in the area we wanted, which were the size we wanted and most importantly DETACHED, were either the same or more expensive than the Barratts home we bought on this scheme.

The downside of this scheme is the equity loan because house prices are continually rising due to schemes like this meaning the loan is continually rising.  However, depending on the terms of your scheme, when/if prices go down, so does the loan etc.

We wouldn't have been able to buy a house until we hit 40 if not for this scheme and I would have been paying rent at a higher monthly cost anyway so, for us, the benefits outweigh the risks for now.

Martins Money Saving forum is really hot with mortgage advisors, financial advisors, real estate agents and general people like you and me who are always debating this scheme.  Might be worth hopping over there to get their take (just pretend you're British for a warmer reception) on the situation.

Good luck.

Another thing you might want to look into, is the various hard-to-treat homes schemes, and green loans, etc., that are available in Scotland. 

If you're willing to go with an older, 'fixer-upper', then you might find that the lower price, coupled with the grants and loans that you might get for insulation, new heating, etc., could make it more affordable than a new build under the Help to Buy scheme.  (Of course, it also kind of explains why Scotland limits that to new builds only.)