Help To Buy Off To 'flying Start' Say Home-Builders

[interestrateripoff]

http://www.bbc.co.uk/news/business-22794816

The government's flagship Help to Buy housing scheme has got off to a 'flying start', according to the home building industry.

The Home Builders Federation (HBF) said that 4,000 people have reserved a new home in the two months since the scheme launched.

Help to Buy enables buyers to put down a deposit of just 5%, by using an equity loan from the government.

But the scheme has also been criticised for helping to boost house-prices.

The HBF said interest in Help to Buy had been "huge", with over 500 a week taking advantage of the scheme.

The second part of the Help to Buy Scheme, when the government will guarantee mortgages, does not start until January next year.

Although success can only be judged by what happens in the long term. In 5 or 10 years will those that bought using the scheme think it was a "success"?

[porca misèria]

Although success can only be judged by what happens in the long term. In 5 or 10 years will those that bought using the scheme think it was a "success"?

Do keep up at the back!

What have the buyers in 5 or 10 years got to do with the Home Builders Federation today?

[rantnrave]

BBC link:

http://www.bbc.co.uk/news/business-22794816

Not got time to copy & paste it all

[Edanmount]

I can't help but think that 500 homes a week is not a large number. If around 40,000 homes a month sell - this is around 1% of all homes sold and new builds should form a larger proportion of houses sold per month.

[The Knimbies who say No]

http://www.bbc.co.uk/news/business-22794816

Although success can only be judged by what happens in the long term. In 5 or 10 years will those that bought using the scheme think it was a "success"?

Hmm, £3.5Bn available.

Say £200k average (likely higher since newbuild?), 20% equity loan = £40k/household.

That means around 85,000 households can be 'helped'.

The first couple of months have seen a rate of 2,000 per month.

Seems premature to describe this as a success imo, it would take nearly 4 years to get through that lot.

Where are the buyers for the expensive stuff?

[winkie]

Why does this thread remind me of the known 'death rally' phenomenon?

[Nabby81]

I enquired about 2 beds on a new development on my road just to see the prices ..£178k for a 2 bed house and all very reserved on the first open evening.I think it is helping but the actually price they are paying is madness.

I do think people are thinking they are getting 20% off the price so are getting a good deal...I suspect a high % have no plan in place to ever pay back the gov loan amount.

[The Knimbies who say No]

I enquired about 2 beds on a new development on my road just to see the prices ..£178k for a 2 bed house and all very reserved on the first open evening.I think it is helping but the actually price they are paying is madness.

I do think people are thinking they are getting 20% off the price so are getting a good deal...I suspect a high % have no plan in place to ever pay back the gov loan amount.

I suppose the reast of us should be delighted that innumerate muppets are piling into the equity loan part of HTB. Less competition when the mortgage guarantee* part starts next year.

*subject to SYNT's point about the scheme mabye having morphed into something else by then.

Edited June 6, 2013 by cheeznbreed

[Edanmount]

I enquired about 2 beds on a new development on my road just to see the prices ..£178k for a 2 bed house and all very reserved on the first open evening.I think it is helping but the actually price they are paying is madness.

I do think people are thinking they are getting 20% off the price so are getting a good deal...I suspect a high % have no plan in place to ever pay back the gov loan amount.

I've seen similar things where I live - new builds at really high prices.

Considering local wages - they are very very high.

Prices per m2 are between £1600-2300/m2 - with 2-bed 65m2 houses costing £140,000.

But with the 20% discount - they are a cheap £112k!

[Panda]

A neat post from MSE

The Help to Sell scheme (often called Help to Buy) does not provide loans. It provides deferred purchase.

Modelling such a scheme as loans will cause serious financial mistakes to be made. The finance provider part-owns the asset; "repayment" is actually buying that share out.

The important bit is that the value of the portion of the asset not owned by the initial purchaser grows in real terms, unlike a loan, which is based on repaying a nominal sum.

Normally inflation works to the advantage of soemone who borrows money to buy a house (http://monevator.com/cheap-re-mortgage-to-invest/).

Those who engage in deferred-purchase agreements, such as Help to Sell, find that they have a reversed position. Inflation means that the portion of the house which they initially couldn't afford remains unaffordable, unless they have exceptional earnings growth (which the average person won't).

Help to Sell enables house-builders to shift stock into the market, and might provide a boost to the trouble construction industry.

Anyone who enters a deferred-purchase agreement believing that it's a "loan" is going to find out over the next few years that they have mis-modelled their finances, and the deferred portion of the house is just as costly as when they couldn't afford it in the first place.

Beware of journos who call this scheme a "loan" scheme. They are unfit to write on personal finance.

Warmest regards,

[inflating]

A neat post from MSE

The Help to Sell scheme (often called Help to Buy) does not provide loans. It provides deferred purchase.

Modelling such a scheme as loans will cause serious financial mistakes to be made. The finance provider part-owns the asset; "repayment" is actually buying that share out.

The important bit is that the value of the portion of the asset not owned by the initial purchaser grows in real terms, unlike a loan, which is based on repaying a nominal sum.

Normally inflation works to the advantage of soemone who borrows money to buy a house (http://monevator.com/cheap-re-mortgage-to-invest/).

Those who engage in deferred-purchase agreements, such as Help to Sell, find that they have a reversed position. Inflation means that the portion of the house which they initially couldn't afford remains unaffordable, unless they have exceptional earnings growth (which the average person won't).

Help to Sell enables house-builders to shift stock into the market, and might provide a boost to the trouble construction industry.

Anyone who enters a deferred-purchase agreement believing that it's a "loan" is going to find out over the next few years that they have mis-modelled their finances, and the deferred portion of the house is just as costly as when they couldn't afford it in the first place.

Beware of journos who call this scheme a "loan" scheme. They are unfit to write on personal finance.

Warmest regards,

Mega interesting!

[Edanmount]

Anyone who enters a deferred-purchase agreement believing that it's a "loan" is going to find out over the next few years that they have mis-modelled their finances, and the deferred portion of the house is just as costly as when they couldn't afford it in the first place.

Beware of journos who call this scheme a "loan" scheme. They are unfit to write on personal finance.

Warmest regards,

Great Post.

[interestrateripoff]

https://www.gov.uk/affordable-home-ownership-schemes/help-to-buy-equity-loans

...

Selling your home and paying back the loan

The home will be in your name, which means you can sell it at any time. You’ll have to pay back the equity loan when you sell your home or at the end of your mortgage period - whichever comes first.

You can also pay back some of your equity loan without selling your home. You can pay back either 10% or 20% or the total amount, so long as the loan is worth at least 10% of the value of your home.

Talk to your lender and HomeBuy agent if you want to pay the loan back in full.

I'm guessing that if the value of the home decreases the value of the loan doesn't?

[opt_out]

A neat post from MSE

The Help to Sell scheme (often called Help to Buy) does not provide loans. It provides deferred purchase.

Modelling such a scheme as loans will cause serious financial mistakes to be made. The finance provider part-owns the asset; "repayment" is actually buying that share out.

The important bit is that the value of the portion of the asset not owned by the initial purchaser grows in real terms, unlike a loan, which is based on repaying a nominal sum.

Normally inflation works to the advantage of soemone who borrows money to buy a house (http://monevator.com/cheap-re-mortgage-to-invest/).

Those who engage in deferred-purchase agreements, such as Help to Sell, find that they have a reversed position. Inflation means that the portion of the house which they initially couldn't afford remains unaffordable, unless they have exceptional earnings growth (which the average person won't).

Help to Sell enables house-builders to shift stock into the market, and might provide a boost to the trouble construction industry.

Anyone who enters a deferred-purchase agreement believing that it's a "loan" is going to find out over the next few years that they have mis-modelled their finances, and the deferred portion of the house is just as costly as when they couldn't afford it in the first place.

Beware of journos who call this scheme a "loan" scheme. They are unfit to write on personal finance.

Warmest regards,

Any proof?

or a link to the post?

Nothing here: https://www.gov.uk/affordable-home-ownership-schemes/help-to-buy-equity-loans

indicates it is anything but a loan.

[Panda]

Any proof?

or a link to the post?

Nothing here: https://www.gov.uk/affordable-home-ownership-schemes/help-to-buy-equity-loans

indicates it is anything but a loan.

http://forums.moneysavingexpert.com/showthread.php?t=4635315&page=2

[tomandlu]

http://forums.moneysavingexpert.com/showthread.php?t=4635315&page=2

Not exactly verified. I'm genuinely curious - are you saying that the amount you have to pay back increases according to an increase in the estimated value of the house? If so, does it decrease if the value falls? And, if so, why aren't the HPC bears piling in?

[Nabby81]

Not exactly verified. I'm genuinely curious - are you saying that the amount you have to pay back increases according to an increase in the estimated value of the house? If so, does it decrease if the value falls? And, if so, why aren't the HPC bears piling in?

That's I understood it the positive spin being if the house loses value you will owe less.

[Nabby81]

That's I understood it the positive spin being if the house loses value you will owe less.

http://www.thisismoney.co.uk/money/mortgageshome/article-2299518/Help-Buy-ladder--prices-rise-does-debt.html

While shared equity schemes can help buyers into new homes initially, they are far from perfect.

If house prices fall, hundreds of thousands of buyers can be left in negative equity.

If prices rise, then the size of your loan will also increase because you owe the Government a proportion of your home. Likewise, if they fall, the amount you owe the Government will drop, too.

Say you buy a house for £100,000, with a £5,000 deposit, £20,000 loan and £75,000 mortgage. If the property value fell over six years to £95,000 you’d have to pay back the Government £19,000 plus a fee of £350.

In total you’d have built up £12,499 in equity over six years after charges and loan repayments.

But if prices rose by £10,000 in this time, you’d have to pay back the Government 20 per cent of this — so £22,000 plus the fee of £350 on the original amount. You’d have built up £24,499 equity to take to your next property.

[I ♥ spreadsheets]

I raised my next point in another thread. What happens when the people piling into this scheme with a 5% deposit start popping sproggs and outgrow their new house in just a few years? The govt gets back their 20% of the SOLD price, leaving the sellers with just the equity they put in (5%) and whatever they paid off of the 75% mortgage. Will it be enough to place a deposit for a larger home, without further government assistance?

The other point...the buyers taking up this scheme CANNOT sell the property without the govt agreeing the sale price (which will be based on a valuation). What happens if their circumstances change all of a sudden? We know new builds lose a fair amount of value straight away, will the valuer agree? Or will the seller be stuck with an unsellable, overpriced, shoebox home?

[19 year mortgage 8itch]

I raised my next point in another thread. What happens when the people piling into this scheme with a 5% deposit start popping sproggs and outgrow their new house in just a few years? The govt gets back their 20% of the SOLD price, leaving the sellers with just the equity they put in (5%) and whatever they paid off of the 75% mortgage. Will it be enough to place a deposit for a larger home, without further government assistance?

The other point...the buyers taking up this scheme CANNOT sell the property without the govt agreeing the sale price (which will be based on a valuation). What happens if their circumstances change all of a sudden? We know new builds lose a fair amount of value straight away, will the valuer agree? Or will the seller be stuck with an unsellable, overpriced, shoebox home?

People move on average, what? Ever 7 years? We're 6 years into the 'crisis', no HPI, very limited wage inflation.

Suddenly we need 20% equity loans. Give it another 6 years we'll need to rollover the first 20% loan and borrow another 20% from the government to move "up the ladder"

[The Knimbies who say No]

I raised my next point in another thread. What happens when the people piling into this scheme with a 5% deposit start popping sproggs and outgrow their new house in just a few years? The govt gets back their 20% of the SOLD price, leaving the sellers with just the equity they put in (5%) and whatever they paid off of the 75% mortgage. Will it be enough to place a deposit for a larger home, without further government assistance?

The other point...the buyers taking up this scheme CANNOT sell the property without the govt agreeing the sale price (which will be based on a valuation). What happens if their circumstances change all of a sudden? We know new builds lose a fair amount of value straight away, will the valuer agree? Or will the seller be stuck with an unsellable, overpriced, shoebox home?

The equity loan scales with the sale price, apparently. Whether Uncle Govt. is happy to see them sold on that basis is another matter.

[I ♥ spreadsheets]

People move on average, what? Ever 7 years? We're 6 years into the 'crisis', no HPI, very limited wage inflation.

Suddenly we need 20% equity loans. Give it another 6 years we'll need to rollover the first 20% loan and borrow another 20% from the government to move "up the ladder"

Haha, maybe you've come up with the answer for the next govt already

The equity loan scales with the sale price, apparently. Whether Uncle Govt. is happy to see them sold on that basis is another matter.

Yep, interesting times ahead.

[Bloo Loo]

I dont know what figures those are based on, but the amount of repayment off capital seems very high indeed, bearing in mind the early years you pay mostly interest,

[19 year mortgage 8itch]

I dont know what figures those are based on, but the amount of repayment off capital seems very high indeed, bearing in mind the early years you pay mostly interest,

Does work a little differently with low rates.

On smartphone, download Karl's mortgage calculator.

(Also a webpage in It s own right, Google it)

[billybong]

http://

www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/10101343/George-Osbornes-Help-to-Buy-is-moronic-says-respected-analyst.html

Albert Edwards of Societe Generale called George Osborne’s proposed Help to Buy scheme, which will encourage banks to lend to borrowers with small deposits, “an unusually misguided piece of government interference in the housing market”.

The measure will see the Government provide lenders with a guarantee of up to 20pc of the price of the property. If a borrower defaults on the loan, the taxpayer will be liable for a proportion of the losses.

But Mr Edwards said the policy risked stoking house prices higher even though they were already “extremely overvalued”.

“I believe it truly is a moronic policy that stands head and shoulders above most of the stupid economic policies I have seen implemented during my 30 years in this business,” he wrote in a research note this week.

http://

www.guardian.co.uk/business/2013/jun/04/george-osborne-help-to-buy-moronic

George Osborne's Help to Buy scheme 'a moronic policy'

It looks like the full spectrum of the media of the LabLibCon party think that the policy has severe shortcomings - to say the least.

It's even making the UK's housing policy a laughing stock in the middle east - likely most other places as well.

http://

www.gulf-times.com/uk-europe/183/details/355124/help-to-buy-scheme-%E2%80%98a-moronic-policy%E2%80%99

First-time buyers need cheaper homes, not greater availably of debt to inflate house prices even further, Edwards said. “This is madness.”

He added that house prices were still overvalued despite Britain being at the epicentre of the global credit crisis and remaining in the “icy grip of private sector deleveraging”.

In other countries, such as the US, house prices were now cheap.

Edited June 6, 2013 by billybong