Help to buy was launched in April 2013 to help people get on the property ladder with in effect a interest free loan for 5 years from the government in return for a 20% equity share of the property. This means that for many home owners, this year they will see interest payable for that loan on top of their mortgage payments and other bills, starting at 1.75% and then rising over the coming years.
Now the good thing is whilst the loan is for a 20% equity of the property, i.e. if your property value rises, so will the amount you need to pay back. The interest is only charged on the amount borrowed. This is good as property prices have in general gone up over the last 5 years so in effect your paying interest on a lower amount than the value of what is owed. This is different to if the would amount would have been mortgaged. However given the usability and all the doom and gloom talks about a crash coming (and please note no one can see into the future just make educated assumptions, and we all know about assumptions don’t we!) this could turn out to not work in home owners favour in the years to come.
The true worry is that home owners may be faced with increasing burden of these extra payments without actually being able to cover the extra. Lets face it, Job losses and pay rises have not been great and there is a worry that a lot of home owners that have got onto the property ladder may find themselves stuck with having to scale back.
There are in effect 3 main options:
1 – pay the interest and continue with the extra payments.
2 – reportage and use the equity gain in the property to pay off the help to buy loan as much as possible – monthly payments may still go up, but the equity loan will reduce*
3 – sell your house and move*
*disclaimer – obviously this is generic advise and your should seek independent financial and legal advise bespoke to your situation (…..and the usual warnings just to get that out of the way!)
The main danger I see is those that are not aware of the changes, fail to plan or, and more than likely, those that have had situations beyond their control that make it hard to adapt to these upcoming changes. More than often we are seeing and helping those that have become stuck not due to their fault, but due to circumstances changing, and we aim to help people know their choices.