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Can you avoid paying more for a ‘Help to Buy’ property?

We all know you pay more for a new build home. It's the same principle as when buy a new car. But latest research shows first-time buyers using a Help to Buy can pay up to 22% more. We take a look at this research and how you can avoid paying over the odds...

Help to buy premium

First-time buyers using a Help to Buy equity loan are paying up to 22% more for homes than those who bought without one, according to new research.

What regions pay more for Help to Buy homes?

If you’re buying your first home in Yorkshire using the Government scheme, you’re likely to be hardest hit.  The ‘Help to Buy premium’ makes properties in the region on average 21.6% more expensive, according to figures from home-moving service reallymoving.

This is closely followed by the West Midlands, where you could pay 21.5%  more and in the North West at 19.9%.

Meanwhile, first-time buyers in Scotland using Help to Buy equity loans are paying an average of 14.7% more. And in London, buyers using the scheme are paying an extra 11.8%, slightly higher than the England average of 10%.

It’s not all bad news everywhere though, in Wales the average Help to Buy premium was just 0.9%, according to the data.

This research follows data from the National Audit Office who’s own research in June put the Help to Buy premium at 1%, alongside a 15-20% premium on new build homes.

What is Help to Buy and why such a premium?

When it was launched, the Help to Buy equity loan scheme was designed to boost house building at a time when developers were nervous to build and getting a mortgage was harder unless you had a significant deposit.  The scheme helped people who struggled to raise a deposit to buy a home.

Under the scheme, buyers need just a 5% deposit, topped up with a Government loan of 20% (or 40% in London) that is interest-free for the first five years. Under the rules, you can only use the scheme if you are buying a new-build property.

But critics argue that developers are taking advantage of the scheme’s attractiveness and inflating prices, resulting in these hefty premiums.

So should I use Help to Buy?

If you’ve got your heart set on a new build but wondering whether to buy with Help to Buy or not, here’s what you need to think about:

  • Mortgage Affordability – There are currently a wide range of cheap mortgages available which will let you buy a home with a 5% deposit without using the scheme. For example, if you have a 5% deposit, Newcastle Building Society offers a two-year fixed-rate mortgage deal at 2.59% + product fees. While HSBC UK is offering a two-year fixed-rate mortgage deal at 2.69%, with no product fees. Speak to a fee free mortgage broker to see what you could afford to borrow today.
  • More mortgage choice without Help to Buy – A key benefit of opting for a regular mortgage with a 5% deposit instead of using the Help to Buy scheme, is you’ll be able to buy on the open market, which means more mortgage choice.
  • Negotiate – While you’ll pay a premium for new build homes, you don’t want to pay an over inflated amount. So do your research and negotiate the price down. Volume house builders have seen a drop off in demand as people “wait and see” what happens with Brexit, so there’s no better time to ask for a discount. See our recent article on negotiating the price of a new build
  • Research – buying a new build comes with a premium. So make sure your purchase is fit for purpose because if you want to move soon after you purchase, you might find you are in negative equity. Here’s what you need to know before buying a new build

Commenting on today’s research, HomeOwners Alliance Chief Executive Paula Higgins adds: “It’s important for first time buyers to do their research on mortgages before being ushered into a new home showroom as they could decide an older home might be more suitable as well as holding its value better in the longer term.”

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