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Help to Buy – What you need to know

The Help to Buy scheme was introduced in England and Wales by the Government in April 2013. At that time, it had become increasingly difficult for people to get onto the property ladder. This was largely due to rising house prices, wages not increasing, and being stuck in the cycle of renting with no way to save for a deposit. The Help to Buy scheme helps by giving people a loan for their deposit, meaning they are able to buy a property.

 Who can access the Help to Buy Scheme?

Initially, Help to Buy was aimed at first time buyers. Providing they had a deposit of at least 5%, the scheme would grant them with a loan for their deposit of up to 20% of the purchase price. The buyer would then have to take out a mortgage for the remaining amount.

The scheme was later rolled out to existing home owners who wanted to buy a new build property. However, it remains available for the purchase of newly built properties only.

How is the loan paid back?

If a property is bought using the Help to Buy scheme, for the first five years you do not have to make a payment and no interest is added to the loan. This means that you are only making payments on the mortgage that you took out.  After 5 years, the loan must be paid, and interest is added to the repayments. Buying back the Government share of the property is known as staircasing. Most people at this point will make a decision to either re-mortgage their property in order to pay back the government loan or sell the property and move.

Why is an RICS valuation required before you staircase or sell within the scheme?

 In order to staircase and continue to live in the property or, sell and move house, the person who owns the property – the same person who took out the Help to Buy loan – must have an RICS valuation which can provide a current Market Value of the property.  This is needed because the property owner cannot be seen to financially benefit from the scheme, and to ensure that the Government gets a return on their investment.

 What is involved in the valuation process?

An RICS valuation is needed in order to work out the amount of deposit which should be repaid. We carry out Help to Buy valuations that follow the exact requirements of the scheme and we send out one of our experienced and qualified valuers to inspect the inside and outside of the property.

It is important to remember that the valuation is only valid for 3 months. After 3 months, there is a two week opportunity for the owner to request an updated “desktop” valuation which extends the valuation for a further 3 months.  After those 2 weeks, the Scheme requires that the valuer must carry out a re-inspection.

Summary

The Help to Buy Scheme has been a great driver for developers to sell properties. This has not only helped the economy but also allowed people to buy a property who otherwise wouldn’t be able to. The cost of valuation fees, the fees payable to the agencies that manage the Scheme, and interest added to the initial loan, has proved to be expensive for many home owners using this Scheme. Whilst it has been a great method to allow people to buy properties, the costs can escalate quite quickly. In some cases, home owners are not able to borrow more from a mortgage lender to cover the costs of the loan repayment, they are forced to move, which is costly in itself. It is important that if you are thinking of buying a property under the Help to Buy scheme, that you consider whether you will be able to afford the added costs when it is time to staircase.

At Avery & Co Chartered Surveyors and Valuers we are able to guide you through the process of having an RICS Valuation if you are coming towards the end of your 5 year period and need to make a decision. Get in touch today and one of our friendly team will be happy to have a chat with you.

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