First time buyers in the UK pay on average 8% more for new homes through the Government’s flagship Help to Buy scheme which is designed to make properties more affordable, new research reveals.
The study collected data relating to almost 70,000 first time buyers purchasing a new home and found that they paid on average £257,908 for a home compared to £277,968 who bought using Help to Buy.
Help to Buy enables people to buy new homes with deposits of just 5%, with the Government providing an equity loan for an additional 20%, or 40% in London. Without the scheme, many buyers would be unable to afford to get on the property ladder, as they would lack sufficient savings to raise a full 25% deposit themselves.
According to ReallyMoving, which analysed the figures of customers for the research, one reason could be that new homes already command a 16% premium compared to second hand properties, reflecting the fact that they are chain free and come with brand new fixtures, fittings and appliances.
It also points out that it is possible that buyers who are using the scheme can afford a more expensive property in order to benefit from an equity loan, and thus making the deposit affordable.
‘The Help to Buy scheme has provided a leg up onto the housing ladder for many first time buyers but this data suggests that first time buyers may not be getting such a good deal after all. When they come to sell this could increase the risk that their home isn’t worth what they paid for it,’ said the firm’s chief executive officer Rob Houghton.
But he also pointed out that those using the Help to Buy scheme may face difficulty when selling their property on as it struggles to compete with new homes nearby offering Help to Buy, impacting its value.
When it comes to repaying the equity loan, buyers can only pay off 50% or 100%, with no option for smaller payments. Interest starts at 1.75% after 5 years and increases every year at inflation plus 1%.
‘Those hoping to sell may also find that as they are required to repay the equity loan in full, they are unable to also raise a deposit on their next property, leaving them trapped,’ he added.
