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

  1. 14 October 2019
  2. By Daisy Stephens

According to our latest research, first time buyers in England buying a new home using the Help To Buy Equity Loan scheme are paying on average 10.3% more than those not using Help To Buy.

According to data collected from 41,500 first time buyers who used our home moving services over the last year, first time buyers purchasing a new build home with Help to Buy in England paid an average of £303,450. Calculated at a postcode area level to account for regional variations, the so-called Help to Buy Premium paid was 10.3%.

What is the Help to Buy Equity Loan Scheme?

The Help to Buy Equity Loan is a governmental scheme designed to help first time buyers take their first step onto the property ladder. It enables first time buyers to buy a new home with just 5% equity, with a government loan topping up the deposit with the extra 20% (or 40% in Greater London). The loan is interest-free for the first five years.

The Help to Buy loan is incredibly attractive, especially to first time buyers struggling to save a big enough deposit. However our research suggests that first time buyers might not be the only ones reaping the benefits, with developers potentially charging more for homes with Help to Buy available and encouraging First Time Buyers to pay over the odds. Having said that, it’s important to note that it may partly be that first time buyers are keen to get as much as they can out of the 5-year-interest-free loan and as such are buying larger properties than they would were they not supported by the scheme.

Is it the same everywhere?

No – 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 (21.6%, 21.5% and 19.9% respectively) than those buying new homes independently.

In London, the Help to Buy premium has remained relatively stable throughout the past twelve months but, at 11.8%, is still marginally higher then the average for the whole of England.

At 0.9%, Wales has the smallest average Help to Buy premium.

What do we think?

CEO Rob Houghton says: “Help to Buy might be better named Help to Sell, since our research shows that despite the scheme’s popularity with buyers, housebuilders are the ones reaping the benefits. 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.

“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.”
For more information on our research you can see our press release on the Help to Buy Premium.

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