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Homes cost more using Help to Buy

Thursday 18 October 2018

First-time buyers using Help to Buy are paying almost 10 per cent more for their properties than those buying new builds without the scheme, new research suggests.

Figures from reallymoving.com reveal that first time buyers using the scheme are paying on average, eight per cent more than those buying new homes without using the flagship scheme.

Help to Buy purchasers paid an average of £278,00 over the past year for their new builds, compared to £257,000 for those who did not. This is in addition to a 16 per cent premium new homes command, compared to equivalent second hand properties, reflecting the fact that they are chain free and come with brand new fixtures, fittings and appliances.

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.

Taxpayers have so far pumped more than £8 billion into the Government's flagship housing policy, which offers buyers with a deposit of just five per cent the chance to purchase a home, with the Government subsidising the remaining 20 per cent with an equity loan. 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 per cent deposit themselves. 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.

The figures, collected from more than 70,000 first-time buyers, will raise fears that taxpayer cash pouring into the housing market under the Help to Buy scheme is creating a bubble that risks leaving a generation of homeowners stuck in negative equity. And it begs the question, could a scheme designed to make new homes more affordable, become the next PPI scandal?

Rob Houghton, CEO of reallymoving.com said: “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.”

Beneficiaries of 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. 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 per cent or 100 per cent, with no option for smaller payments. Interest starts at 1.75 per cent after five years and increases every year at inflation plus one per cent. 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.