The “ticking time bomb” of Help to Buy repayments could be set to explode due to the cost of living crisis, an agent had warned.
It comes as new analysis suggests the Government is now pocketing thousands of pounds more in interest from Help to Buy homeowners who have reached the end of their five year interest free period.
The original Help to Buy scheme ran from 1st April 2013 to 31st May 2021, offering an equity loan of up to 20% on the purchase price of a new-build home of up to £600,000, climbing to a 40% loan for those buying in London.
The five-year interest free equity loan meant that the government had an entitlement to a share of the future sale proceeds equal to the contribution required to assist your purchase.
Research by Benham and Reeves shows that when taking into account both the depreciation of a property over the past five years, coupled with growth in property values, the Government has made a tidy sum on each Help to Buy property across almost every region of England.
The East Midlands has proved the most profitable for the Government when it comes to their Help to Buy hand outs, with the average Help to Buy home in the area now worth an estimated £300,690 versus £256,089 five years ago.
This means that the Government’s original share for those utilising the loan to the full 20% has increased from £51,218 to £60,138 - an increase of £8,920.
The Government has also benefited to the tune of more than £8,000 in the North West, the South West and West Midlands.
The Help to Buy handout has backfired in just one region, London, where their potential 40% share in the average property has fallen by £1,590. Many Help to Buy homeowners have also now reached the end of their five year interest free period, just as interest rates have started to spiral.
In London, the average annual interest and management fee due in the sixth year of a Help to Buy loan and the first year of the non-interest free loan payback period – where borrowers pay 1.75% - is a notable £3,455 per year, equating to £288 per month on top of the cost of a Help to Buy mortgage.
Even in the North East, where this additional cost is at its lowest, Help to Buy homeowners will still see an additional £751 added to the annual cost of their Help to Buy repayments.
Beyond year one, the interest owed increases each year by the annual increase in the Retail Price Index inflation (RPI) plus 1%. This figure that has climbed substantially in recent years, from 3.2% in July 2018 to 9.0% in July 2023.
Those in London who were paying a fixed rate of £3,455 in their sixth year of homeownership, will now see this cost climb to £3,809 as a result of inflation - a jump of £354.
Marc von Grundherr, director of Benham and Reeves, said “this is a cost that is only going to climb as the years go by and it’s fair to say that the ticking time bomb of Help to Buy could soon explode, with those who can’t afford these escalating costs potentially facing the repossession of their homes if they aren’t able to manage. This would spell disaster for the housing market and would only pile further pressure on a rental market that is ill equipped to deal with current demand due to the government’s crackdown on landlords. Those facing this Help to Buy spike in unaffordability have limited options.
You can only pay off the equity loan in half, or full, meaning that this isn’t an option for most. There are also very limited options when it comes to remortgaging, with many banks refusing to touch Help to Buy homes, while others require 10% equity in addition to the deposit you originally placed. This only really leaves you with the option to sell your home, although this will again prove problematic for those who may have fallen into negative equity.
It’s fair to say that the consequences of yet another poorly devised government housing incentive, focused on feeling demand rather than supply, are now becoming very apparent.”
Fraud pilot investigation launched into Help to Buy loans
Homes England and HMRC are exploring possible fraud within the Help to Buy Equity Loan Scheme.
It forms part of a wider range of data agreements allowing the taxman to conduct fraud pilots on Government schemes such as Help to Buy but also the more recent Bounce Back Loan support initiative. Under the Help to Buy fraud pilot, Homes England will provide a sample of 3,854 Help to Buy application records to HMRC as a one-off exercise.
HMRC will disclose information on applicant economic circumstance to Homes England for investigation. The investigations will check that applicants have followed rules such as not borrowing in excess of 4.5 times their household income and not owning any other residential properties at the time of purchase.
HMRC said "this pilot will help to identify instances of fraud by mis-declaration relating to the over-inflation of household income and fraud by omission relating to the failure to adequately declare the extent of existing property ownership. In instances where an applicant has over-inflated their household income, Homes England would like to further explore economic circumstance. This will help them to understand the extent to which the applicant has placed themselves in a position of financial hardship by accruing additional debt from the Government, and any risks that Homes England are subsequently exposed to (for example, in the event of debt recovery.”
England is the worst place in the developed world to find housing
England is now “the most difficult place to find a home in the developed world”, housebuilders have claimed in a snapshot of the housing crisis that a more significant proportion of people in England live in substandard properties than the European Union average.
The Home Builders Federation (HBF), an industry group representing companies that build for private sale, found that England has the lowest percentage of vacant homes per capita in the Organisation for Economic Co-operation and Development (OECD), a group of 38 nations, including most of the EU the US, Japan and Australia.
It drew the comparisons before next week’s Labour Party conference, as housebuilders again called for planning restrictions to be eased to accelerate construction.
According to OECD data, about a quarter of private renters in the UK are also “overburdened” by housing costs – spending more than 40% of income, compared with just 9% in France and 5% in Germany.
Stewart Baseley, the executive chair of the HBF, said the figures are “a wake-up call, demonstrating the urgent need to act now to prevent us falling even further behind”.
The study found the UK has the lowest number of homes built since 1980 compared with Spain, France, Portugal, Greece, Romania, Bulgaria and Hungary. Housebuilders have faced attacks from environmentalists for lobbying successfully over the pollution of waterways and for delays to carbon-cutting standards. The HBF’s call for the construction of an extra 100,000 homes annually aligns with estimates by social housing providers and homelessness charities.
The construction industry has been frustrated by the government’s stop-start approach to planning reforms, as it has weighed the need for more building against opposition from voters in Tory constituencies concerned about over-development. The party lost the 2021 Chesham and Amersham byelection after the Liberal Democrats focused on the government’s plan to increase housing targets in the southeast, increasing pressure to build on the countryside.
That Britain needs more housing cannot be denied. At present, figures claim that every rental property on the market receives at least 23 inquiries, meaning that many people are struggling to find a home and rental prices are being pushed ever higher.
Allowing private house builders to increase the supply of market-rate housing for sale is not the answer, as the average price of a new home is out of reach for most of the population. Neither is the rash of apartment complexes explicitly built for rent that we have seen springing up across the UK’s cities in the last few years. The rents on these developments are far out of the reach of the average worker.
We need to see a massive increase in social housing developments in this country, which would require a significant investment by central and local governments. This would be a challenge in these cash-strapped times, but it could be addressed creatively.
Private landlords have been facing significant challenges lately, which have resulted in many leaving the business. As a result, there has been a reduction in the supply of rental properties, leading to an increase in rental prices. While private landlords play a crucial role in providing housing, there must be a fair and equitable arrangement for both landlords and renters.
A restriction on Private landlords buying in certain areas or price ranges may be one way, with housing available for first-time buyers or starter families protected to remain open at a more reasonable price. In areas with a lack of affordable housing where homes are being bought up as holiday lets or short-term rentals, we have seen a lot of damage being done by the massive rise in property being bought up for short-term lets, though some cities and councils are now starting to try to address this. Longer tenancies to provide more security of tenure for renters would also be a step forward, as would rent controls.
At the same time, landlords must know that they can remove anti-social tenants easily and have a better system of long-term finance to protect them from the sudden massive increase in interest rates that we have seen recently driving up their costs and rents. Rouge landlords should face harsher sanctions; though most landlords are decent people, those in the property sector will always take advantage of people and provide substandard services.
The provision of housing built for sale by social housing companies where the property price is linked to the wages of those living within the area and the resale price stays connected to the affordable living wage is one way forward that should be explored. There would need protection to stop incomers snapping up the properties from outwith the areas until the needs of the local population had been addressed. Many local communities have been devastated as families who have lived in places for generations are forced to move away and replaced with well-off incomers, student housing providers or for-profit rental companies driving up prices in once-affordable areas.
Councils and other public bodies selling off land and property they own to private buyers rather than utilising it for the common good should also be ended.
A reworking of the mortgage market for Landlords and the average house hunter is urgently needed. The system of short-term rates and trackers could be more sustainable. A fixed-rate method for the whole loan term is the best way forward; it does exist but is used sparingly. Knowing you were to pay one rate for the 25, 30 or maybe even 35-year loan term would enable people to plan, especially if they could transfer the rate and loan when they chose to move home.
The housing market in the UK needs reform; it cannot be denied, but none of the main political parties seem to have the will to make the massive investment in public housing and other necessary reforms.