The government’s Help to Buy scheme was introduced in 2013 with the aim of making it easier for first time buyers to afford their first property.
Applying to eligible buyers with a 5% deposit, Help to Buy Equity Loans allow buyers to borrow up to 20% of the cost of a newly built home (now up to 40% in London boroughs) from the government, with the remaining proportion of the property funded via a residential mortgage. One of the most attractive features of the scheme is that the proportion borrowed from the government only becomes repayable after the first 5 years, making the initial mortgage payments much more affordable for buyers.
Although the scheme has many benefits and has been used by many thousands of people to get onto the property ladder, there are certain aspects of Help to Buy that are not always fully appreciated by buyers.
Here we look at three things you should know when buying with Help to Buy.
One of the stipulations of using the Help to Buy scheme in England is that it can only be used when purchasing a new-build property. Whilst many people believe that new-builds will be completed to a high standard and are therefore unlikely to contain any defects, this is often not the case. In fact, some studies suggest that the average new-build can contain up to 150 defects.
Although new-builds come with certain warranties, such as the NHBC Buildmark warranty, it is often far quicker and easier to have the housebuilder complete any repairs before you move in. Instructing a comprehensive Snagging Report from a Chartered Surveyor such as ourselves can save a great deal of time, effort and stress down the line, giving you peace of mind before you move in.
Staircasing or full loan repayment
Following the purchase of a home using Help to Buy, you can choose to make a voluntary part repayment – ‘staircasing’ – or a full repayment of the Help to Buy loan at any time. The repayment must be calculated at the prevailing market value, and there is a minimum voluntary amount of 10% of property’s value at the time of repayment.
Many people may choose to may a repayment of the Help to Buy loan at the end of the 5 year interest free period as they look to increase the proportion of the property they own.
In any event, the Help to Buy loan must be repaid in full at the point the property is sold, unless it has already been repaid. The amount due is calculated on the proportion of the house that was used during the original purchase at the current market value (not the original purchase price) minus any repayments that have been made.
‘Help to Buy’ Homeowners looking to sell their property should be mindful of the repayment procedure and arrange their RICS Valuation in good time if they are looking to sell.
Using a RICS Registered Valuer
If you want to sell your home, remortgage it or make a partial or full repayment of the loan (as outlined above), you will need to use the services of a RICS Registered Valuer to undertake a Valuation Report on the property. The reason for this is that RICS Registered Valuers must adhere to a strict set of guidelines as outlined by the RICS and can therefore be trusted to act in an ethical and thorough manner when conducting property valuations.
The Valuation Report that is produced will determine the amount repayable in direct proportion to the current market value of your property.
The other stipulation when choosing a Valuers is that they must be independent of an Estate Agent.
Contact a RICS Registered Valuer
As Lea Hough is a firm of Chartered Surveyors and governed by the RICS, we are able to help and we are usually instructed directly by home owners. We also have extensive experience in producing compliant reports for various Help-to-Buy or similar shared equity schemes across Lancashire and the North-West. For more information, please contact us.