Help To Buy scheme. Good or Bad?

JamesU2005 · 29 Sep 2013 at 21:26

With David Cameron and the Conservatives bringing forward the Help To Buy scheme, do you think the scheme is a good idea overall?

As a first time buyer it looks great, but part of me feels like it might just cause me more issues down the line, requiring such a large mortgage and owing the government too.

Thoughts?

Is it wise for first time buyers to take advantage? Or save longer and wait?

Cleeecooo · 29 Sep 2013 at 21:47

There are some stringent rules about things such as getting lodgers and selling the property. That's pretty much the only downside I can see from the brief glimpses I've had at the scheme.

For the most part, people stay in properties for at least a decade (I'm assuming that's the case) and for those people, the scheme looks very good. 5 years interest free while you pay back a mortgage which is charging you interest is something I'd see as 100% positive.

The basic gist is that if you understand the limitations and they won't affect you, you should certainly go for it.

E: You asked if yo should wait and save for longer, I'd say that would differ case-by-case, but for most people, 5 years interest free isn't something that would be prudent to turn down.

Natwee · 29 Sep 2013 at 21:47

I'm no expert in mortgages, so this is just my opinion.

The good points are that you need a lower deposit and it would help people get on the property ladder.

But from what Ive read, the loan stays at a fixed percentage, rather than a value. So if you buy a house for 100k, you get 20k, but if you then sell for 150k, you pay back 30k, despite only borrowng 20, supposedly "interest free".

The loan is interest free for 5 years, If there was a couple buying then it seems a good idea if over the 5 years you could save enough between you to pay the loan off. Its when interest starts getting added that it seems to become a complete rip off.

Also after the 5 years, then its charged at 1.75% of the loan, and thereafter it increases at 1% higher than RPI. Bearing in mind that this is on top of the fact that youll always pay more than you borrowed if house prices rise, it just seems like paying interest on interest.

If you can pay it off in the first 5 years, so basically saving the deposit whilst actually owning the house it seemd not bad, but other than that it seems like a bad idea.

Also means you have to buy a new build which i personally wouldnt want as dont the prices of those generally fall from purchase price? And it also makes letting the property out not an option.

Cleeecooo · 29 Sep 2013 at 21:51

Natwee said:
Also means you have to buy a new build which i personally wouldnt want as dont the prices of those generally fall from purchase price? And it also makes letting the property out not an option.

Housing ought to increase in price. Not always the case, but seeing as there was a crash in prices recently, it's more likely to rise than fall IMO. Also depends on what's happening in the area...

dowie · 29 Sep 2013 at 21:53

seems a bit silly given that the govt has not so long ago bailed out banks after mortgages were sold to people who couldn't afford them.... now the govt is preparing to take on board risk again for people who can't afford mortgages

I mean I'm not complaining too much - I'll benefit from my London flat going up in value even more but I think they've got better things to spend money on than creating property bubbles

Mr Jones · 29 Sep 2013 at 22:00

The scheme if it's still available in 1.5 years time (still saving for a good deposit) will allow me to get a house with a mortgage cheaper than my current rent.

Problem: Between now and then, prices can be inflated because of the scheme itself. Worrying for me, yet at the same time one of the few viable options for me (no substantial savings, no bank of mum & dad) to consider.

Natwee · 29 Sep 2013 at 22:02

Cleeecooo said:
Housing ought to increase in price. Not always the case, but seeing as there was a crash in prices recently, it's more likely to rise than fall IMO. Also depends on what's happening in the area...

Guess so. Im just basing my opinion on a couple of friends who bought new build houses from plan, then it turned out the price of them went down. Thats probably;ly not the usual way though!

Cleeecooo · 29 Sep 2013 at 22:09

dowie said:
seems a bit silly given that the govt has not so long ago bailed out banks after mortgages were sold to people who couldn't afford them.... now the govt is preparing to take on board risk again for people who can't afford mortgages

I mean I'm not complaining too much - I'll benefit from my London flat going up in value even more but I think they've got better things to spend money on than creating property bubbles

Depends how they're doing it. If they're giving mortgages out willy nilly and then masses of people are defaulting on them, thus destroying the bubble that was created, then it's an issue.

Creating demand for housing is a good thing for employment and therefore the economy in general. It's a thin line between boosting demand and creating a bubble though.

Goodie · 29 Sep 2013 at 22:09

I've just used this scheme to buy a new build with the missus. It's worked well for us because it has meant that we get out of our rented accommodation a couple of years early while we would have needed to save a bigger deposit. We will carry on saving once we move out and easily have the money to pay the loan back after the five years.

Our other option was to move out sooner using a smaller deposit, however we wouldn't have got near the interest rate of 2.4% that we have managed to get due to the scheme. It will work okay for us, it's not perfect but by far and away it was our best option. If your strict enough with money to make sure you pay it off ASAP then I think it's good, if you don't actually account for it and get it paid off then it's not so smart

dowie · 29 Sep 2013 at 22:36

you might not even have to worry about the loan too much if you're in the right area and get in soon enough - certain areas of London will may well experience sufficient enough rises that when you re-mortgage in 2-3 years you can get both a larger mortgage to cover the govt loan and end up with 80% LTV simply due to your property rising...

I reckon a this could easily create a mini bubble, some people will be buying near the top of it with only 5% down and end up slightly shafted for a few years...

PapaLazaru · 29 Sep 2013 at 22:39

House prices will no doubt increase due to more people available in the market.

Natwee · 29 Sep 2013 at 22:47

dowie said:
you might not even have to worry about the loan too much if you're in the right area and get in soon enough - certain areas of London will may well experience sufficient enough rises that when you re-mortgage in 2-3 years you can get both a larger mortgage to cover the govt loan and end up with 80% LTV simply due to your property rising...

I reckon a this could easily create a mini bubble, some people will be buying near the top of it with only 5% down and end up slightly shafted for a few years...

The percentage remains static, so if the value of the property goes up the value of your loan goes up too.

dowie · 29 Sep 2013 at 23:07

Natwee said:
The percentage remains static, so if the value of the property goes up the value of your loan goes up too.

hmmm so the govt (or tax payers really) are exposed not just to the risk of default but additional market risk too... hope interest rates remain low then...

Natwee · 29 Sep 2013 at 23:14

another point is that if the value goes up, and you want to sell, by the time you have paid off the government percentage, you may not actually have enough to redeem the mortgage. So basically youd better like youre house because youre trapped there.

Hades · 29 Sep 2013 at 23:19

I say bad. It simply helps to push the market up and so is not only self defeating but hurts others too.

dowie · 29 Sep 2013 at 23:24

Natwee said:
another point is that if the value goes up, and you want to sell, by the time you have paid off the government percentage, you may not actually have enough to redeem the mortgage. So basically youd better like youre house because youre trapped there.

nah that shouldn't happen... if they've lent 20% they'd get back 20% of the proceeds when you sell - your mortgage doesn't increase so if your house has risen in value you can still gain from that rise from your 80% stake in the property

wesley · 29 Sep 2013 at 23:50

it may be good for first time buyer but it'll push up the house price even higher which is bad for everybody else like me

HangTime · 30 Sep 2013 at 01:00

Natwee said:
But from what Ive read, the loan stays at a fixed percentage, rather than a value. So if you buy a house for 100k, you get 20k, but if you then sell for 150k, you pay back 30k, despite only borrowng 20, supposedly "interest free".

The thing is though if you've sold the house for £50k more than it cost, paying an extra £10k to the government is nothing to worry about. If you couldn't have afforded to buy that £100k house in the first place without the scheme, then taking out the scheme has definitely helped. Of course, for people just using it as a way of getting cheap credit (compared to traditional mortgages they could afford anyway), it may not be the wisest move.

Personally I'd given serious consideration to deals like this, although be wary of any restrictions. I know when I looked into a similar (not as good) scheme a few years back you were limited in terms of what lenders you could take the mortgage from.

Finally one thing I noticed was even though they are "bringing forward" the scheme, the loans still don't get paid until 2014 so it's not like you can complete on a house until next year anyway.

digipeep · 30 Sep 2013 at 01:04

Tories only doing this to prop up the property market, they have been doing it ever since they have been in power, low interest rates, quantitative easing aka printing funny money, now this latest scam.

In a nutshell house prices are at least 40% overpriced, the average UK house price at £170k is a joke, it should be around £100k. That is the crutch of the problem, far too high house prices. And of course politicians on all sides have their own little BTL empires on the side so no matter who gets into power they want to keep house prices as high as possible and ever start a new bubble.

It's terribly sad for people in their 20s/30s to get into so much debt to buy something that is vastly overpriced.

Stretch · 30 Sep 2013 at 01:08

It does nothing to remedy the underlying issue. You've still got the same number of people chasing the same number of properties. Give them access to more money, and outcome is inevitable. Higher prices and buyers still struggling to find homes.