By Hannah Connolly
eing aware of the pitfalls from the outset of the first time buying process often lends itself to ensuring you side-step common problems. Yet, when it comes to seeking advice, there is such an overwhelming wealth of information out there that an already difficult process can end up feeling like an impossible one.
“Help to Buy was first launched in the UK in April 2013 and since its inception a total of 313,043 properties have been bought through it.”
Like trying to find the right routine for your skin, there is such an oversaturation of ‘experts’ out there that choosing the right voice to tune into can feel impossible. Finding your footing on the property ladder often feels the same, but like any good esthetician will tell you (or should), there is no blanket routine that works for all and the same applies to buying your first home.
The Stack took a closer look at the how of buying your first home by talking to our members, who shared with us the various ways they purchased their first homes and how they felt afterwards. Over 20% of our community shared that they had used the government-run Help to Buy scheme and they are not alone. In a report carried out at the end of last year, some 21,000 homes were bought through the scheme, which was a 40% increase on the figures from the year before. This is why The Stack has taken a closer look at the process: to help you decode the pros and cons as you embark on your own journey to home owning.
Help to Buy was first launched in the UK in April 2013 and since its inception a total of 313,043 properties have been bought through it. Approving loans equal to £18.9 billion and succeeding in securing £86 billion pounds worth of property for people all over the country.
In essence, Help to Buy is an equity loan (sometimes referred to as the home equity loan) and is effectively a type of consumer debt. These loans allow first time buyers to borrow money against the equity of their homes. The loan amount is calculated based on the difference between the home's current market value and the due balance of the mortgage. The loans, however, only apply to new build properties and regional price caps do apply, for example, in London, the scheme is only available on homes priced at £600,000 or less.
It is worth mentioning that Help to Buy as a scheme has found itself under fire in recent years as the profits amassed from the purchases have contributed to huge wealth gains for contractors and firms, despite being a taxpayer funded initiative. In 2019, the house-building company Permission alone made a massive 1 billion pound profit - equal to more than £66,000 on each one of the homes they sold - with over half of the total sales being processed through the Help to Buy scheme.
Yet major changes have been made since the initiative's introduction. Eight years on from the initial roll out, in April of this year, the scheme has been streamlined to ensure that only first time buyers can access the loans. Previously it had allowed for buyers to purchase their second homes.
Discover our list of Help to Buy pros and cons below to see if the scheme could work for you.
Pros:
Smaller Mortgage
Saving up for the deposit is often one of the trickiest parts of the entire process and can be difficult to manage financially alongside other obligations. With Help to Buy, you are able to purchase a home with a smaller mortgage, even if you only have a 5% deposit. For example, instead of being limited to purely a 95% mortgage, if you choose the Help to Buy scheme to access a 20% loan, your mortgage will only be 75% of the property’s total value.
Interest Free Loan For Five Years
Through Help to Buy, your loan will be interest free for five years, with this infrastructure the difficulties of repaying your loan alongside your mortgage can be alleviated, allowing you time to settle in and manage your payments moving forward. This can be a huge bonus, especially when statistically, most homeowners find the first few years the most difficult to manage. However, bear in mind that you will still be paying interest on your mortgage which will of course depend on the type that you took out and the total cost of your home.
An Initial Interest Rate Of 1.75%
The initial interest rate of 1.75% is a competitive rate which you will begin to pay in the 6th year. Following the 6th year the interest rate will increase year on year by the rate of inflation plus a further 1%. This is important to consider in our current climate, where recent reports suggest inflation rates are set to hit the property and homeowner market particularly hard. This can mean that after the five year grace period you could end up paying far more than you initially anticipated.
You Can Reduce Your Loan At Anytime During Your Term
The Help to Buy scheme facilitates you to reduce what you owe at any time by paying off decent chunks of your loan at once. This is known as ‘staircasing’ and means that you have the option to pay back a portion of your loan to a total of at least 10% of your current home value or even pay the loan off in full. In order to do so you will need to pay a £200 fee and have your home evaluated to ensure the totals are up to date. What this facilitates is the ability to minimize or altogether avoid the amount of interest you will need to pay on your loan year on year.
Cons:
The Amount You Owe is Not Fixed After The First Five Years
Your loan value follows the fluctuations of the housing market meaning that the amount you owe from the initial loan is not fixed after the first five years. So, if you purchase a home in an area that goes up in value and becomes more desirable you will have to repay more than you initially may have calculated. As an example, if you took a 20% Help to Buy equity loan on a property worth £200,000, this loan would be worth £40,000. However, if your house value has risen to £250,000 you would then have to pay back £50,000.
Only Specific Lenders Offer A Help to Buy Mortgage
Help to Buy mortgages are not available or offered from all lenders across the board and the lenders that do offer these mortgages will vary from the standard mortgage offering. Some of the Help to Buy mortgage lenders include Barclays, Halifax and Natwest.
Help to buy Is Only Offered On New Build Properties
The Help to Buy scheme only applies to new build properties and cannot be accessed for older or character type houses, which, from a preference-based point of view, might not be for everyone.
You Need Permission Before Making Any Home Improvements
Any improvements you want to make on your new home require permission if bought through the Help to Buy scheme. More often than not, major works will not gain approval as it is preferential that the homeowner repays the loan before making any significant changes. It is also worth noting that if any improvements do get the go-ahead you will be required to pay an administration fee.
The women featured below show how they navigated their way through the Help to Buy scheme and what they learnt along the way
The Wiser For It
Age when bought first home: 30
Industry: Tech
Annual Salary: £38k
House Price: £410k
Deposit provided by: Help to Buy
Post Code: SE15, Peckham
Solo mortgage?: No
Bank that approved the mortgage: NatWest
Having used the Help to Buy scheme, The Wiser For It had an income of £38,000 and paid £410,000 for her first flat in Peckham, south London. She has emerged from her experience feeling “more secure and grown up”. Realising that once over the mountain she feels being a homeowner is more economically viable than renting, feeling she is “paying towards something every month that helps for a better future”.
In terms of the process overall she found the experience exciting and has emerged optimistic about the prospects of future property investments, “I now feel like I could do it again and actually have the skills. The thing that made the process difficult was the waiting, always feeling as though others were going to pull out.” The Wiser For It also has some advice for those seeking to buy their first homes: “offer lower and stick to it and make sure to ask more questions about the state of the home for example, does the heating work properly? And make sure to get that in writing. It is always the stuff that you don’t ask about that you have the issues with and if you don’t have it in writing there is nothing you can do about it. Oh and check out the neighbours a bit more before committing”, she said.
The Conscientious Buyer
Age when bought first home: 32
Industry: Fashion
Annual Salary: £37.5k
House Price: £225k
Deposit provided by: Help to Buy
Post Code: SE25, Croyden
Solo mortgage?: Yes
Bank that approved the mortgage: Virgin
It was Virgin bank that provided the Conscientious Buyer with her mortgage to buy her first apartment in London on a salary of £37.5k a year working in the fashion industry. Having grown up in London, she felt she had inadvertently contributed to gentrification whilst accessing the Help to Buy scheme, which dictates that first time homeowners must buy new properties. “I do feel guilty, I am from London and have experienced the problems caused by gentrifying areas in the city”.
In terms of the process she described it as being “one of the most stressful experiences in her life” but tapped into her network of friends to find support “My parents don’t own their home so I asked a lot of friends and mortgage advisers and I learnt a lot”.
When asked if she would change anything or impart any advice to prospective buyers, The Contentious Buyer said “I am happy to have something that is physically mine, but I would have maybe saved up a little bit more to afford something bigger and been more competitive with my offer”, suggesting that it is important to bear in mind that a new home “may need a lot of work and you should take that into consideration in the price that you end up paying”.
The Insider
Age when bought first home: 28
Industry: Estate Agent
Annual Salary: £31k
House Price: £300k
Deposit provided by: Help to Buy
Post Code: NN14, Rothwell
Solo mortgage?: Yes
Bank that approved the mortgage: Halifax
When The Insider started looking to buy her first property she had been working in the property sector from some time which allowed her first buying experience to run smoother, “I always worked closely with other estate agent sales teams so I knew how to be on the ball when it came to chasing.” She also cites MSE as being an online resource that was straightforward and easy to understand.
In terms of planning, The Insider shared that it can be vital to set aside a budget for renovations and home improvements. “I haven't gone overboard and I have sought out a lot of discounts but it feels like a never ending story of spending”.
The Quick Thinker
Age when bought first home: 29
Industry: Procurement Manager
Annual Salary: £46k
House Price: £300k
Deposit provided by: Help to Buy
Post Code: UB5, Northolt
Solo mortgage?: Yes
Bank that approved the mortgage: Santander
With the Help to Buy scheme, The Quick Thinker used the new first time buyer specification introduced this April, and found “the mortgage application process very straightforward”. Purchasing an apartment in the commuter town of Northolt for a total of £300,000 with a mortgage term of 30 years.
She opted for the Help to Buy scheme as it meant she was able to get her footing on the ladder as a single homeowner whilst considering her next steps down the line, “I am proud to have a space to call my own, but it is not my forever home, Help to Buy just gave me a great start.” Though she did have some words of advice, sharing that “conveyancers were a constant source of frustration” and in the future she would seek out a smaller team for better consistency.
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Buying a property can be daunting, but does Help to Buy really get first time buyers on the property ladder, and is it for you?
By Hannah Connolly
