Thousands of homeowners with Help to Buy loans will see a change in their finances next month when they begin to repay fees to the government.
Under the scheme, each home buyer gets access to an equity loan of up to 20% of a new build property’s value. Initially, home buyers in London were eligible for the same 20% loan but this rose in 2016 to 40% in the capital.
For the first five years, the loans are interest-free, but for early adopters of the scheme, that period is about to come to an end.
Once the five year interest-free period is over, borrowers must begin to pay a fee of up to 1.75% of the value of their loan, increasing each year by RPI plus 1%.
It’s believed that around 2,000 homebuyers took out the first loans in early 2013, while also taking out mortgages with commercial lenders.
From next month, the average early Help to Buy borrower living outside of London will owe the government £652 over the course of a year, with this figure rising to £788 by 2023. For those in the capital, the average fee will be £927 a year, rising to £1,121 by 2023.
The number of properties purchased with Help to Buy loans has increased dramatically as the scheme has gained more publicity. The size of the loans taken out by borrowers has risen too, meaning that borrowers who purchased their homes in 2014 onwards are likely to face significantly higher bills than early-adopters.
Christine Whitehead, emeritus professor of housing economics at London School of Economics, said that while all borrowers were given the terms of the loan by lenders and financial advisers, changes to personal circumstances in the years since their purchase could lead to “a shock” for some.
She said: “I do think people probably will be surprised, even though they’ve been told about it.”
Lindsay Judge, senior research and policy analyst at the Resolution Foundation, said the fees on the Help to Buy loans could provide a “double whammy hit” to borrowers when combined with any interest rate increases.
According to research from estate agency Savills, a 1% point rise in interest rates would add more than £900 a year to the cost of the average UK mortgage.
Ms Judge adds: “There is a group of people who are exposed, and there will potentially be a significant impact on their living standards.”
Nearly 145,000 properties were bought using Help to Buy loans between April 2013 and September 2017.
Further statistics suggest that approximately 38% of Help to Buy borrowers have an income of £40,000 or less.
