This may be a controversial question, but I have to ask whether the Government backed ‘Help to Buy’ scheme is actually helping first-time buyers.
On the surface it should be a brilliant scheme. Outside of London the Government will give you up to 20% of the value of your new home, to a maximum of £40,000. They retain the 20% ownership and share the risk a little in that if the value goes down, then so does their investment. the 20% remains at 20%, whatever the value.
But I have an issue with it.
And that is that the homebuilders are loading the price of the new houses by up to £40,000.
So the valuation of the house isn’t real and no-one is prepared to call ‘Emporers new clothes’ as they are making too much money.
The selling agents make great commission and the home builders get an amazing price for a new home.
And the only loser is the buyer.
You probably won’t notice when you’re buying it.
But this overvaluing become very real when you come to sell it.
In the ‘Help to Buy’ paperwork, they warn that the value may go down for the first five years by an average of say 5%.
And this is where the real issue lies.
When you come to resell it, you can’t sell it to someone else using the same ‘Help to Buy’ scheme that helped you to buy as it’s only available for brand new homes. A previously owned home, however new is no longer a new home by the strict definition of their scheme.
So the real value of the house is crystallised when you come to sell. Because the house is no longer new, you can only sell it to a buyer without the help of the scheme and their own additional £40,000.
So by definition, it has to find its value based on the other homes for sale around it.
in one scheme I looked at recently, the ‘Help to Buy’ to buy houses were set at a price of £191,000 for a three-bed semi.
Not bad value most of you will think.
But when every other slightly older house in the road is for sale at £145-155,000 it starts to look like a very expensive trap that you’ve been lulled into.
There’s no way out without taking the hit.
You can’t even rent it to cover your losses as it’s in their terms that you can’t rent a house bought under the ‘Help to Buy’ scheme and as they own the second charge, they can enforce this.
So I believe that we’re creating a new negative equity bubble that’s just waiting to burst.
We’ve all been told since we were kids that the ultimate freedom is to own your own home. There’s nothing better than investing in bricks and mortar.
But not when it’s deliberately overpriced and almost impossible to resell within ten years without taking a huge loss.
Of course the mortgage lenders are going to back the scheme as they have the first charge over the property. Unless it’s been a completely savage cut will see their 25% safely back in their previously Government backed pockets.
But for the little person with a dream of home ownership, if their circumstances change and they have to sell, their future is one that’s faced with a potentially huge personal debt or a home they don’t want to live in and yet can’t afford to sell.
So I’m not sure the ‘Help to Buy’ is helping at all.
It’s inflating prices to make it even harder for first-time buyers to get on the market without it and storing up problems for them in the future.
If you do think it’s for you, then read the small print. read it again and then choose to keep renting for a while longer.
And don’t believe that ‘Help to Buy’ will actually help.