Help to Buy could be ‘the next PPI’ says house move quote specialist reallymoving releasing data that reveals first time buyers using the scheme are paying on average 8% more than those buying new homes without it.
The PPI comparison is, says reallymoving, particular poignant as the five-year interest free part of the Help to Buy loan is now coming to an end for the first users of the scheme.
Rob Houghton, reallymoving CEO, said: “Help to Buy 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.”
According to data collected from almost 70,000 first time buyers using reallymoving for home move services, first time buyers purchasing a new build home without Help to Buy pay on average £257,908 compared to £277,968 paid by those who use the scheme.
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.
However, the reallymoving data suggests an additional 8% is being paid on homes sold through Help to Buy.
reallymoving acknowledges it is possible that buyers who are using the scheme can afford to be more generous in the price they are prepared to offer, in addition to developers apparently demanding higher prices for Help to Buy homes.
But overall, reallymoving maintains its data means Help to Buy may encourage first time buyers to choose a more expensive property in order to benefit from an equity loan – making the deposit affordable.
In turn, according to the data, that means beneficiaries of Help to Buy may face difficulty when selling their property on, as it struggles to compete with new homes nearby offering Help to Buy, impacting its value.
At a time when house prices are falling, particularly in London and the south east, first time buyers are at even greater risk of finding themselves in negative equity.
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,” said Houghton.