THOUSANDS of homeowners who took out a Help to Buy loan are in arrears due to a string of “administrative errors”.
Borrowers may potentially be in hundreds of pounds worth of debt as a result, which can affect repayments when they come to remortgage.
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The government will lend buyers an equity loan of up to 20 per cent – 40 per cent in London – of the property value, interest-free for the first five years.
But a repayment system wasn’t put in place by the time the interest-free period ended for the first wave of borrowers and it failed to let homeowners know that charges would soon start being applied.
Housing minister Esther McVey confirmed that as of November 2019, some 1,983 borrowers were behind on payments by one to two months, reports Mortgage Solutions.
This is equal to around 5.8 per cent of all Help to Buy customers who are currently due to be paying interest.
What help is out there for first-time buyers?
GETTING on the property ladder can feel like a daunting task but there are schemes out there to help first-time buyers have their own home.
Help to Buy Isa – It’s a tax-free savings account where for every £200 you save, the Government will add an extra £50. But there’s a maximum limit of £3,000 which is paid to your solicitor when you move. These accounts have now closed to new applicants but those who already hold one have until November 2029 to use it.
Help to Buy equity loan – The Government will lend you up to 20 per cent of the home’s value – or 40 per cent in London – after you’ve put down a five per cent deposit. The loan is on top of a normal mortgage but it can only be used to buy a new build property.
Lifetime Isa – This is another Government scheme that gives anyone aged 18 to 39 the chance to save tax-free and get a bonus of up to £32,000 towards their first home. You can save up to £4,000 a year and the Government will add 25 per cent on top.
Shared ownership – Co-owning with a housing association means you can buy a part of the property and pay rent on the remaining amount. You can buy anything from 25 to 75 per cent of the property but you’re restricted to specific ones.
“First dibs” in London – London Mayor Sadiq Khan is working on a scheme that will restrict sales of all new-build homes in the capital up to £350,000 to UK buyers for three months before any overseas marketing can take place.
Starter Home Initiative – A Government scheme that will see 200,000 new-build homes in England sold to first-time buyers with a 20 per cent discount by 2020. To receive updates on the progress of these homes you can register your interest on the Starter Homes website.
She said: “This debt very largely reflects short-term administrative issues with direct debit set-up at the start of the interest fee paying period.”
The loan must be repaid after 25 years, when you come to sell the property or it can be added to your mortgage when you come to remortgage.
The amount that you pay back is equal to the portion that you borrowed, for example 20 per cent, so the sum will be more than you borrowed if your house has increased in value.
If your house has decreased in value or stayed the same, then you will have to repay the amount that you borrowed.
Regardless of when they decide to pay the loan back, homeowners must pay the interest charges monthly once they kick in.
How will it affect homeowners?
The payment arrears are likely to have affected borrowers’ credit scores, blocking them from the best deals on the market.
This means that the only choice they have when it comes to remortgage is roll onto their lender’s standard variable rate (SVR).
This will push up monthly payments for homeowners, who also face paying back the extra interest charges.
For example, let’s say after five years a couple who took out a loan to buy their home five years ago, now have 20 per cent equity in their property.
Their house is worth £200,000 and it hasn’t changed in value.
They decide to keep the 20 per cent Help to Buy loan when they come to remortgage, meaning they need to borrow £120,000 or 60 per cent loan to value.
This opens them up to the best rate deal from NatWest at 1.19 per cent, making repayments £463 a month over 25 years.
But those who roll onto an SVR deal at an average rate of 4.9 per cent (Moneyfacts.co.uk) could end up forking out £694 a month. That’s an extra £231 a month.
Those whose properties have gone down in value may see monthly payments go up even more.
A report by the National Audit Office back in June predicted that there would be a issues collecting payment for charges because the correct processes hadn’t been put in place when they were originally set up.
It also found that many households affected hadn’t responded to attempts to contact them by the loan management company, Target.
This is something Homes England, who runs the Help to Buy scheme, has put down to out-of-date or incomplete contact details held by the firm.
A spokesperson for Target told The Sun: “We are working closely with Homes England to actively manage customer accounts and ensure the best possible treatment for everyone.”
The Help to Buy loan scheme is open to more than just first-time buyers and it’s been extended until 2023.
Although new research reveals that taking out the loan on the wrong day could cost first-time buyers £4,765.
