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A report on the Government-backed Help to Buy Equity Loan scheme has been published by the National Audit Office.
In the report it was revealed that two-fifths (37%) of buyers would not have been able to purchase a property without the support of Help to Buy, which it estimates to have led to around 78,000 additional sales of new-build properties since the scheme started. In addition to this, the scheme has helped younger buyers onto the property ladder, as 63% of first-time buyers were aged 34 and under.
While 81% of Help to Buy loans were provided to first-time buyers, the scheme was intentionally set up to be accessible to a wide range of property buyers. As a result, homeowners were able to use the scheme to purchase a larger or more expensive property, which resulted in 19% of buyers who previously owned a property using the scheme to buy, on average, more expensive properties than first-time buyers.
Furthermore, 31% of buyers said that they could have purchased the property they wanted without the scheme, which the report estimates to have led to 65,000 households using the scheme who could have purchased the house they wanted without it. In addition to this, over the whole scheme, 10% of buyers had household incomes over £80,000 (or over £90,000 in London).
According to the report, 5% of buyers were in arrears who bought in the first 11 months of the scheme, which is above the national average as according to figures from UK Finance, in the first three months of 2019, 2.5% of homeowners were in mortgage arrears. These homeowners may find themselves in difficult circumstances as the report states that buyers who want to sell their property soon after they have purchased it might find themselves in negative equity, mainly due to the fact that new builds typically cost 15-20% more than an equivalent ‘second-hand’ property.
The Help to Buy equity loan scheme was set up by the Government to help make buying a newly built home more affordable. As such the scheme involves the Government lending buyers up to 20% of the cost of the newly built home, so that the buyer only needs a 5% cash deposit and a 75% loan-to-value mortgage to purchase the home. Buyers aren’t charged loan fees on the government loan for the first five years of owning the property, after this they are charged an interest fee of 1.75% of the loan amount, rising each year by the increase (if any) in the Retail Prices Index plus 1%.
The Help to Buy Equity Loan scheme should not be confused with a Help to Buy ISA. The Help to Buy ISA is a tax-free savings account, again set up by the Government, which provides a way for first-time buyers to save for a house deposit and benefit from a Government bonus – our guide on Help to Buy ISAs provides further information.
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