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This is how much more money first-time home owners who use Help to Buy are paying

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Hollie Richardson
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Help to Buy scheme

New research has found that first-time house buyers who use the Help to Buy scheme could be paying up to 21.6% more in the long run.

Last month, money expert Martin Lewis advised people who are not yet on the property ladder to open a Help to Buy ISA with just £1 so that they do not miss out on the initiative. The deadline for opening an account is 30 November, which is now less than two months away. The account basically means that the government will add 25% to your savings, up to a maximum of £3,000 on savings of £12,000, to help you buy your first home.

You can then choose to put the deposit towards a property using Help to Buy schemes. With a Help to Buy: Equity Loan, the government lends you up to 20% of the cost of a new-build home, so you’ll only need a 5% cash deposit and a 75% mortgage to make up the rest. Through Help to Buy: Shared Ownership, you can buy a share of your home (between 25% and 75% of the home’s value) and pay rent on the remaining share.

In theory, these schemes should help people on a low-income or who don’t have a Bank of Mum and Dad.

So far, so good? Well, actually, Help to Buy isn’t without its flaws…

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Earlier this year, research found that two-thirds of the people who benefited from the Help to Buy scheme would have been able to buy a property anyway. 

And now, further research proves that first-time home buyers using Help to Buy to buy new-builds are actually spending a lot more money than those who buy without it in the long run. 

The study, by conveyancing firm Reallymoving, collected data from over 40,000 first-time buyers. It reported that those purchasing a new build home with Help to Buy in England paid on average £303,450 in the 12 months to September 2019.

Buying a house
Help to Buy first-time home owners are paying 10% more.

This means that on average, people using the scheme were paying 10.3% more than those who buy a property without Help to Buy. Regionally, the Help to Buy premium is highest in Yorkshire, the West Midlands and the North West at 21.6%, 21.5% and 19.9% respectively. In London, the research found first-time buyers using the scheme paid a premium of 11.8 %. And in Scotland, the Help to Buy premium was nearly 15%. 

The news came after Barratt Developments recently revealed that 40% of its customers were using Help to Buy.

Speaking about the research, Reallymoving chief executive Rob Houghton said: “Help to Buy might be better named Help to Sell, since our research shows that despite the scheme’s popularity with buyers, housebuilders are the ones reaping the benefits.”

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He continued: “Most first-time buyers find it difficult to raise a deposit and as a consequence they are being cornered into the new-build sector, where homes already command higher prices, before paying an additional premium on top if they need to use a Help to Buy Equity Loan.

“In many cases they simply don’t have the deposit required to explore other options such as buying a second-hand home, which may offer considerably better value.”

This also means that, when it comes to selling the property, homeowners could lose out on more money.

“When buyers come to sell, they could find themselves in negative equity and unable to compete with new developments nearby offering Help to Buy, forcing them to accept a lower price,” added Houghton.

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So, is Help to Buy the right course to take for first-time homeowners? 

Well, it’s perhaps worth opening the Help to Buy ISA, as you don’t need to buy a property under the scheme using your savings – it just means that you don’t benefit from the government’s bonus. 

You can read more about Help to Buy ISAs here

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Hollie Richardson

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