Expanding Help to Buy to the second-hand market could solve the negative equity crisis

September 11th, 2018

A generation of homeowners are at risk of being stuck in negative equity because of the government’s Help to Buy scheme, an investigation by The Times has found.

After comparing house prices in ten towns and cities across Britain, an analysis found that the average cost per square metre is almost 15 per cent higher in new homes eligible under the scheme.

Critics claim that young people are potentially being left in overpriced houses, which – despite being easier to buy – have become more difficult to sell because buyers are getting more for their money from second-hand properties.

Help to Buy was launched in 2013 and supports 40 per cent of new-build sales, offering buyers with a 5 per cent deposit an interest-free loan for five years of up to 20 per cent of the purchase price, or 40 per cent in London.

Hiten Ganatra, Managing Director of Visionary Finance, believes the problem lies in the fact Help to Buy is only available on new properties.

He said: “Help to Buy has been a good addition to the market. It has helped developers get building and given many first-time buyers the chance to get on the property ladder.

“A solution to the negative equity issue would be to roll out Help to Buy to the second-hand property market. This would mean first-time buyers aren’t compelled into buying a new build to get the support they need from the government.

“You would also see more stimulation in the whole market and more established properties selling.

“It is important that the burden is not solely put on developers and that there is sufficient supply available both in the private and new build sector to cope with the demands.”

It’s important to note that if the value of their property falls, buyers with Help to Buy loans do not have to pay the government back the full amount.

But the newspaper article reveals that prices for new properties have grown 15 per cent faster than for older homes since Help to Buy was introduced.

Steve Turner, of the federation trade group, told the Times that Help to Buy is meeting “all of its objectives” as the government continues to build 300,000 homes a year.

He added: “It has helped almost 250,000 people on to the housing ladder and increased supply by an unprecedented level.

“Meanwhile, many Help to Buy owners have built up equity in their homes as prices have risen. That is in addition to no longer having to pay rent.”

Visionary Finance is one of the leading independent mortgage advisors in the region. Their experienced team helps customers secure competitive fee free mortgage deals, from a broad range of lenders.