The many drawbacks for buyers using Help to Buy (as well as greedy developer rip-off prices)

” … One of the biggest drawbacks of Help to Buy is that if you choose to sell up, the Government will ask for its 40% stake back. But with house prices falling in inner cities, Kim says this isn’t necessary bad. “Upon selling the property, if it does make a loss then the Government will absorb 40% of the loss made,” she said.

“One of the biggest benefits is the number of companies now offering the scheme. There were plenty of options all over London.”

But she says, bear in mind that after five years you will have to start paying back the interest – and your current salary is taken into consideration for this.

The government loan is interest free for the first five years. After that the borrower is charged a fee of 1.75% of the loan’s value. That fee then increases every year at 1% above inflation.

“You also can’t sub-let a buy to let property” she adds.

“This means that everyone living in the building is an owner – minimising any risks of investors renting neighbouring flats to frequently changing tenants. But bear in mind, you will have to pay a ground fee.”

However, while being unable to sub-let means you’ll be able to build a community with local residents, if you choose to move out, the only option you have is to sell up.

This, she says, means she won’t be able to work abroad or travel in the near future, as she’d not be able to rent the property to pay off her mortgage in the meantime.

Speaking of the drawbacks, she added: “Any profit made upon selling the flat will be shared with the Government – you’ll keep 60% and pay back 40% of the total amount made from the sale.”

“The Help to Buy scheme has been a very beneficial for first time buyers who otherwise would not be able to get on the housing market. But due to the complex nature of the equity stake from the Government, buyers do need to go into this with their eyes open,” explained Richard Campo, manager at mortgage advisor Rose Capital Partners.

“We have seen eye watering ground rent and service charges to the degree where lenders were declining mortgage applications due to the prospect of high future rises and subsequent concerns on affordability on the mortgage.

“Even the introduction of leasehold houses was only stopped by developers when mortgage lenders refused to offer products for these properties.

“The loan offered on Help To Buy is set as a percentage rather than a fixed amount, meaning if a house price doubles the loan would stay fixed, less any capital repayments, while the government would double it’s share (20% outside London, up to 40% in London). As such, serious thought needs to be given on how to exit or refinance down the line. …”