Help to Buy forces first-time buyers to sell up – What can you do?

The Government’s Help to Buy scheme is forcing first-time buyers to sell up. It is another sign of the UK property market struggling.

Why is this and what can you do if you might face this problem

The Help to Buy scheme was a government initiative designed to assist first-time buyers and homebuyers in the United Kingdom to purchase a home or move up the property ladder.

380,000 people who bought a property using help to buy before the scheme closed last October. They are secured against the property and are interest-free for the first five years.

Now, London’s mayor Sadiq Khan has called on the government to extend the interest-free period on Help to Buy loans to help those facing increasing costs, reports The BBC.

However, at the moment there is no relief for people caught in the unfortunate position.

How did it work?

Help to Buy: Equity Loan: This is one of the most well-known versions of the Help to Buy scheme. It was available to first-time buyers and existing homeowners looking to purchase a new-build home. The government provided an equity loan of up to 20% (or 40% in London) of the property’s value (40% for London properties) as long as the buyer could contribute a 5% deposit. The remaining amount was covered by a mortgage from a lender. The equity loan was interest-free for the first five years. It was repayable either when the property is sold or at the end of the mortgage term.

Help to Buy: Shared Ownership: This scheme allowed buyers to purchase a share (usually between 25% and 75%) of a property owned by a housing association. Buyers can then pay rent on the remaining share. Over time, they have the option to purchase additional shares in the property, a process known as “staircasing.” This scheme is often used by those who cannot afford to buy a home outright.

Help to Buy: ISA (Individual Savings Account): This scheme encouraged saving for a deposit by offering a government bonus. First-time buyers could save up to £200 per month in a Help to Buy ISA, and the government would add a 25% bonus (up to a maximum of £3,000) when the funds are used to purchase a home.

Help to Buy: Mortgage Guarantee: This version of the scheme was designed to help those with smaller deposits (typically 5%) secure a mortgage by offering lenders a government guarantee on a portion of the mortgage. This scheme ended in December 2016.

What can be done?

Sam Murphy MD or Mortgage Medics said: “High inflation and high interest rates have created the perfect storm for many homeowners who used the Help to Buy scheme. Many are facing a double whammy of a big jump in their mortgage payments as their fixed rate comes to an end, and having to start paying interest on the HTB equity loan at the end of the 5-year interest free period.

“It’s important that anyone in this position seeks advice from an independent mortgage adviser as there may be steps they can take to mitigate the financial impact.”

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Related: How to prepare for the end of your fixed rate mortgage