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First time buyers using Help to Buy pay 10% more for new homes

Rental Property

First time buyers in England buying a new home using the Government’s Help to Buy Equity Loan scheme are paying on average 10% more than those buying new homes without it, a new study has found.

According to data collected from 41,500 First Time Buyers using reallymoving for home move services over the last year, those purchasing a new build home with Help to Buy in England paid on average £303,450 in the 12 months to September 2019.

Calculated at postcode area level to account for regional variations, the figures show that the premium paid by those using Help to Buy Equity loans was 10.3%.

The Help to Buy premium is highest in the North and parts of the Midlands, with first time buyers using the scheme in Yorkshire, the West Midlands and the North West paying approximately a fifth more at 21.6%, 21.5% and 19.9% respectively, than those buying new homes independently.

Scotland has also seen a rapid increase in the premium paid by those using Help to Buy over the last year, peaking at 14.7% in September 2019, while in London, the Help to Buy premium has remained relatively stable throughout the past year and currently stands at 11.8%, marginally higher than the England average.

The current Help to Buy Equity Loan Scheme will be replaced by a new version launching in April 2021 that will be restricted to First Time Buyers only and for properties with a market value up to new regional price caps. It will run for two further years before closing in March 2023.

The firm says that while the scheme can seem like a lifeline for those struggling to raise a deposit, enabling them to buy a new home with just 5% equity, topped up with a Government loan of 20% or 40% in London which is interest-free for the first five years, the attractiveness of the scheme is enabling developers to charge more for homes with Help to Buy available.

‘Help to Buy might be better named Help to Sell, since our research shows that despite the scheme’s popularity with buyers, house builders are the ones reaping the benefits,’ said chief executive officer Rob Houghton.

‘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,’ he pointed out.

‘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. It’s important that those using the scheme consider their exit strategy, including whether or not they can afford the loan repayments on top of their mortgage when the interest free period comes to an end,’ he added.