First time buyers left high and dry by Help-to-Buy

First-time buyers left high and dry by Help to Buy as cost of missing final deadline revealed

Research by the Gradual Homeownership provider, Wayhome, has revealed that first-time buyers in danger of missing the final Help to Buy completion deadline of 31st March 2023, could have to find an additional £52,218 in order to complete their purchase, while failing to do so will see them forced to return to the market and borrow an additional £27,330 – costing them £38,621 more over their first five years of homeownership in the process.

While the Help to Buy application deadline may have expired at 6pm on 31st October 2022, those who have applied for a loan before the deadline are still able to benefit from the scheme.

However, the clock is ticking and come the 31st March, any first-time buyers who are yet to legally complete on their purchase will be left high and dry by Help to Buy.

While it’s unknown how many buyers could be impacted at present, hundreds have signed a petition calling for a deadline extension, with hundreds more also joining a Facebook group called ‘Lost out due to Help to Buy equity loan build deadline. Extension Required’.

But could it mean for those who fail to meet this deadline?

In short, they will no longer be eligible for the five year interest free loan and will be required to find the additional funds that would have been fronted by the scheme in order to complete on their purchase. Those who fail to do so will be able to have their reservation fee and deposit refunded, but will incur any additional costs such as legal or financial advice, as well as seeing their property purchase collapse.

The average first-time buyer who applied ahead of the final deadline back in October and utilised the full 20% Help to Buy loan could have done so based on the following criteria: –

Average first-time buyer house price (October 2022): £261,091.
5% minimum deposit: £13,055.
20% Help to Buy Equity Loan: £52,218.
Remaining Mortgage Requirement: £195,818.
Annual Mortgage Repayment (5 Year Fixed Rate @4.04%): £12,455.
Five Year Mortgage Repayment at 5 x the Annual Repayment (Help to Buy Interest Free Period): £62,276.

This means that should they fail to meet the completion deadline, they will need to find over £52,000 to fill the Help to Buy void and keep their property transaction afloat.

This potential additional cost climbs as high as £186,199 in the capital, where London’s first-time buyers were able to borrow as much as 40% of a property’s value having placed a 5% minimum deposit.

But what happens if they can’t bridge the gap left by Help to Buy and have to start their house hunt over?

Failing to find the funds previously fronted via the Help to Buy scheme would see first-time buyers forced back into the market, incurring the following average costs today: –

Average first-time buyer house price (December 2022 – latest available): £262,527, up £1,437 versus October 2022.
15% average deposit: £39,379, a £26,325 increase less their original 5% deposit of £13,055.
Remaining Mortgage Requirement: £223,148, a £27,330 increase in the sum required when borrowing.
Annual Mortgage Repayment (5 Year Fixed Rate @4.04%): £14,914, a £2,459 increase per year.
Five Year Mortgage Repayment at 5 x the Annual Repayment:: £74,572, a £12,296 increase in their mortgage repayment costs over five years.

Not only will they need to borrow a further £27,330 to cover the marginal increased cost of homeownership and bridge the gap left by Help to Buy, the cost of their deposit and their mortgage repayments will increase by a combined £38,621 over the first five years of homeownership.

Co-founder and CEO of Wayhome, Nigel Purves, commented:

“The Help to Buy clock is ticking and those that are yet to complete on their purchase are running the risk of having the carpet pulled from beneath them come the end of March.

If they don’t complete in time, they face the huge task of finding thousands of extra pounds in order to keep their purchase alive. If they fail to do so, they have no other choice but to let the transaction collapse, returning to the market in search of a new home which will also see the cost of homeownership jump dramatically.

Those that find themselves in this predicament will have a very tough choice to make and when doing so, they will also need to take into account the other non-refundable costs already incurred, such as legal and financial advice, as well as the time and stress of searching for a new property.

While there is no direct Help to Buy replacement for those who do have to go back to the drawing board, there are a number of other more affordable routes to homeownership available via the private sector. So although it may certainly seem like a huge step backwards, don’t panic, there are other options that can help give you a financial foot up onto the property ladder.”