Many first-time buyers are unable to save for a deposit. This is due to high rent or simply not earning enough.
On the face of it, these schemes provide a solution for those who are struggling to get their foot on the ladder.
However, is it as good as it’s cracked up to be?
What are shared ownership schemes?
Shared ownership schemes are aimed at helping people on low incomes who earned too much to qualify for social housing. They have existed since the 1970s.
Smaller deposits and smaller mortgages might sound like a fair trade for owning slightly less than the full share of a property.
After all, isn’t owning part of a property better than nothing?
Help to Buy
The Help to Buy scheme involves paying interest on your equity loan for five years, the initial rate of interest (1.75% in the sixth year) is generous considering the current market.
Interest rates
However, although you will benefit from five years without interest and a low rate in your sixth year, the interest applied to your loan will then increase by 1% every year plus any RPI increase.
These creeping costs could end up causing problems to deal with further down the line. It’s also worth remembering that should RPI increase dramatically, so could the interest applied to your loan.
Taking this into account, the amount you will ultimately need to repay is not fixed and will fluctuate with the market value of your property. This means if your house has risen in value you may be eligible to pay significantly more than you originally borrowed.
New builds
Another pitfall of these schemes is tied into the properties you can purchase which are often new builds.
Many young people have reported that there are often discrepancies between the asking price and the value of the properties.
Katie Webb of Shelter told The Debrief that:
there is a premium on new builds and [developers] have a bit of a captured market because of this.
Negotiation
Effectively this means there is less room for negotiation which is leaving first-time buyers on the back foot.
Some property experts even claim that the Help to Buy scheme has started to inflate house prices.
The concern here is that it is causing a housing bubble that will burst when the scheme ends, leaving a vast number of buyers in negative equity.
Whilst these schemes have answered a clamouring of young people to get their foot on the property ladder, they are not without their pitfalls and should be carefully considered before you enter them.
If you do decide to purchase a house on one of these schemes, don’t forget if you need to sell your house fast We Buy Any Home is always here to help.
