Can Help To Buy Still Help You Buy?
- AuthorKeith Yates
In 2013, former chancellor George Osborne announced in his budget speech that the government would be setting up the Help to Buy scheme, a programme designed to help potential buyers get their foot on the property ladder at an earlier stage.
Though the Help to Buy scheme is in fact made up of several different schemes, the most popular of these was the Help to Buy ISA. Under this scheme, savers stashed their cash in an ISA that the government promised to top up with an extra 25% of the money they had already saved to help with a deposit. Described as “the biggest government intervention in the housing market since the Right to Buy scheme”, the Help to Buy scheme was an oasis in the desert for Generation Rent and those still living at their parents house.
Unfortunately, it now seems that this oasis was in fact a mirage.
On Friday 19th August, it was revealed that the Help to Buy scheme would not in fact help buyers save for their deposit, but instead provide a 25% bonus after the deposit was paid, rendering the scheme somewhat useless for first-time-buyers. With no financial aid for the initial uphill struggle of saving a deposit, first time buyers will have to look elsewhere for support or settle for a lower deposit and a higher mortgage rate.
Since its official launch, the Help to Buy scheme has attracted around 500,000 first time buyers looking to cash in on what felt like a golden opportunity. Finally the dream of purchasing property seemed attainable, as banks and building societies across the UK called out: “lets save for your deposit together!” However, a closer look into the small print revealed its fatal flaw: the bonus would only be paid out after the exchange of contracts and deposit had taken place, to help with the overall purchase cost.
When asked why this clause was included, the Treasury admitted that it was to discourage non-home buyers looking to cash in on the back of the scheme. Truth be told, it makes sense. However, with 500,000 people registering to the Help to Buy scheme and opening accounts to start saving, it should have been blatant that they were doing so in the belief that their deposits would be bumped up – especially as this was what was publicised.
Furthermore, it has emerged that the details of this scheme were subjected to a considerably lower level of scrutiny, with no public consultations held to give experts and members of the public a chance to question any potential flaws in the scheme. Claiming it to be an honest mistake, the Treasury stated that it was the rush to get the scheme up and running that caused this oversight.
However, responsibility must also be accepted by banks and building societies, who failed to notice the clause or make it clear to the public. One Treasury spokesman said: “Mortgage lenders, conveyancers, banks and building societies were extensively consulted during the policy process to ensure Help to Buy Isa can effectively support first time buyers when purchasing their first home. Following this consultation, the scheme was specifically designed to pay the bonus immediately prior to completion to ensure the process was as simple for consumers as possible and that the payments were linked directly to a property transaction.”
Regardless of how it happened or who is at fault, this last minute loophole puts a spanner in the works for many who believed they were steadily on their way to becoming homeowners.
So where does this leave first time buyers?
Though it may be true that an EU exit could see a significant drop in house prices, it’s best not to count on it during this period of economical uncertainty.
However, all hope may not be lost.
The Shared Ownership scheme has proved to be successful for many first time buyers, allowing them to purchase a share of the property (usually between 25 – 75%) and therefore save for a much smaller deposit. For example, if the full value of the property was £250,000 and you bought a 40% share, you would generally pay 10% of the share price as your deposit at £10,000. Shared Ownership is not available for all properties, and is generally restricted to properties owned by housing associations. Most are new build and offered on a leasehold only basis, but if you find a property on this scheme that takes your fancy, it might be worth your while.
Other than this, certain mortgage providers will lend up to 95% of the purchase price, allowing you to save for a 5% deposit. This will mean, however, that you may have to pay a higher interest rate than you would with a bigger deposit. This is because the risk to the lender increases with the size of the loan they provide you.
Talbots’ Tip: If you manage to secure a 5% deposit, remember to save some money for the fees involved with the property transaction. These may vary, but a good rule of thumb would be to save an extra £2,000 minimum.
At Talbots Law, we believe that everyone deserves to buy. If you are looking for practical advice and insight into the UK property market, look no further. Our team of experts have helped a vast number of first time buyers through the conveyancing process, providing a stress-free experience from offer through to completion. For all this and more, get in touch with us by phone or email firstname.lastname@example.org.