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Impact of Help to Buy - London Weighting


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I think Feb 2021 is the 5 year anniversary of the launch of London HTB - when the scheme was extended in London to allow 40% of the mortgage to be borrowed rather than the previous 20%. That means anyone who took advantage of the scheme will soon start needing to pay back the 40% loan.

What do people think the impact will be - if any?

There's a few things that strike me about this scheme. The sudden jump in payments is obviously going to be felt more for a 40% loan than the previous 20% loan. But also, when HTB first launched (2013) it triggered house prices to rise - round my way (Essex) by far more than 20% - but the London scheme happened to kick off around the time the market started to slow - in fact, I think in a lot of areas prices in London have probably stagnated since 2017 (its easy to forget amongst recent news stories about booming prices but London had been drifting down for a couple of years up until the start of Covid).

I'm wondering if there's soon going to be a lot of stories about young professional couples, who have bought London new build (which being London is likely to be 'luxury' apartments rather than family homes) now five years older and wanting to move to somewhere bigger to have kids - but struggling to sell as prices haven't risen but, as their property is now nolonger new-build and eligable for HTB, anyone wanting to buy it off them would need to be 40% richer than they were to afford the price. Does that make sense?

Also, when you sell you have to pay back the 40% loan - so if the value of the apartment hasn't risen, they're 40% worse off (minus any equity they've accrued over 5 years - which won't be much on a 30+ year mortgage as typical in London) when they attempt to move to the next step of the ladder. So they'd be climbing down the ladder not up it.

Maybe I'm overthinking all this though - or don't really understand the scheme. Be interested to hear other people's thoughts.

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OK going to reply to my own thread - after some digging found this article by Which from June 2020 (apologies if this got posted back then). Interestingly, they talk about how the equity made by people who have paid back their HTB loan has decreased each year - meaning the ability to 'move up the ladder' is fast vanishing. The data they have only goes up to 2018.

https://www.which.co.uk/news/2020/06/exclusive-one-in-seven-help-to-buy-homes-lose-value-despite-local-house-prices-soaring/

 

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1 hour ago, lostinessex said:

so if the value of the apartment hasn't risen, they're 40% worse off (minus any equity they've accrued over 5 years - which won't be much on a 30+ year mortgage as typical in London)

Well the money they responsibly saved up by getting an interest free loan (knowing they would have to pay interest on 40% of their homes' value) will be an equity cushion for them? Right? ...Bueller?

1 hour ago, lostinessex said:

when they attempt to move to the next step of the ladder. So they'd be climbing down the ladder not up it.

People who make bad bets need to suffer for them, otherwise where is the incentive to make responsible choices?

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1 hour ago, lostinessex said:

I think Feb 2021 is the 5 year anniversary of the launch of London HTB - when the scheme was extended in London to allow 40% of the mortgage to be borrowed rather than the previous 20%. That means anyone who took advantage of the scheme will soon start needing to pay back the 40% loan.

What do people think the impact will be - if any?

There's a few things that strike me about this scheme. The sudden jump in payments is obviously going to be felt more for a 40% loan than the previous 20% loan. But also, when HTB first launched (2013) it triggered house prices to rise - round my way (Essex) by far more than 20% - but the London scheme happened to kick off around the time the market started to slow - in fact, I think in a lot of areas prices in London have probably stagnated since 2017 (its easy to forget amongst recent news stories about booming prices but London had been drifting down for a couple of years up until the start of Covid).

I'm wondering if there's soon going to be a lot of stories about young professional couples, who have bought London new build (which being London is likely to be 'luxury' apartments rather than family homes) now five years older and wanting to move to somewhere bigger to have kids - but struggling to sell as prices haven't risen but, as their property is now nolonger new-build and eligable for HTB, anyone wanting to buy it off them would need to be 40% richer than they were to afford the price. Does that make sense?

Also, when you sell you have to pay back the 40% loan - so if the value of the apartment hasn't risen, they're 40% worse off (minus any equity they've accrued over 5 years - which won't be much on a 30+ year mortgage as typical in London) when they attempt to move to the next step of the ladder. So they'd be climbing down the ladder not up it.

Maybe I'm overthinking all this though - or don't really understand the scheme. Be interested to hear other people's thoughts.

Hi Thank you for your post 

I think it is going to be an ongoing nightmare for those in London who took out an extra £240,000 Loan from the Government interest free for 5 years and now are going to have to start paying it back. The figures are so huge. 

I can tell you so many stories of people who did HTB and those that are ok while those in London with the 40% are going to be stuck or Bankrupt. 

I live in Essex and yes I saw the New Build Houses rise more than 20% in the first few months of HTB. Those who bought houses for around £250,000 taking £50,000 on HTB at the start have done well. They won't need to move if it was a 3 bed which was the prices I was seeing for New Build 3 beds back then. They are now around £400,000 so the £50,000 they borrowed is now going to be £80,000 but that is payable and they can sit tight. Pity they could not have bought without HTB as they are going to pay an extra £30,000 back at todays prices. 

London this is another story. 

One Woman I worked with and her husband put down £30,000 and paid £20,000 stamp duty buying a quite large and nice 2 bed apartment in Mill Hill for £600,000. They start paying the extra 40% in June this year. 

At work we tried to talk her out of it but she would not listen. I remember doing the figures and showing them to her taking into account buying costs, selling costs I worked out that to break even they needed to sell at about £670,000 , as you say they cannot sell to another buyer on HTB. 

She would not listen and said property would always go up. I tried to explain that there was no extra room for it to. I asked her did she think the Government would extend HTB to £800,000 in the next few years and allow it on second hand property. As that was the only way her property would increase in value. 

I don't work with her anymore but I know that the industry both her and her husband are in have been hit hard by Covid. They both had maybe just above average jobs. But neither are going to walk into work and become high paid Directors. 

By the way she is now 41 and her husband about 50 apart form a Lottery Win I can never see them escaping their financial mess.  

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3 hours ago, lostinessex said:

I think Feb 2021 is the 5 year anniversary of the launch of London HTB - when the scheme was extended in London to allow 40% of the mortgage to be borrowed rather than the previous 20%. That means anyone who took advantage of the scheme will soon start needing to pay back the 40% loan.

What do people think the impact will be - if any?

There's a few things that strike me about this scheme. The sudden jump in payments is obviously going to be felt more for a 40% loan than the previous 20% loan. But also, when HTB first launched (2013) it triggered house prices to rise - round my way (Essex) by far more than 20% - but the London scheme happened to kick off around the time the market started to slow - in fact, I think in a lot of areas prices in London have probably stagnated since 2017 (its easy to forget amongst recent news stories about booming prices but London had been drifting down for a couple of years up until the start of Covid).

I'm wondering if there's soon going to be a lot of stories about young professional couples, who have bought London new build (which being London is likely to be 'luxury' apartments rather than family homes) now five years older and wanting to move to somewhere bigger to have kids - but struggling to sell as prices haven't risen but, as their property is now nolonger new-build and eligable for HTB, anyone wanting to buy it off them would need to be 40% richer than they were to afford the price. Does that make sense?

Also, when you sell you have to pay back the 40% loan - so if the value of the apartment hasn't risen, they're 40% worse off (minus any equity they've accrued over 5 years - which won't be much on a 30+ year mortgage as typical in London) when they attempt to move to the next step of the ladder. So they'd be climbing down the ladder not up it.

Maybe I'm overthinking all this though - or don't really understand the scheme. Be interested to hear other people's thoughts.

Yep....correct. Even with QE and low rates etc if the government manage to keep prices as they are....these people are still stuffed. In fact even if they now have better jobs they haven't done well, because they effectively overpaid v's comparisons for the privilege of being in a new build and having an 'enabled sale'. This was always Help to Sell. 

40% interest free loan for 5 years always begged the question what will people do after 5 years. That is regardless of prices rising, falling or staying the same. Anyone buying new homes and not getting a deal (a proper deal) will be on a loser v's an older home. 

So its a double whammy....but didn't the curtains look nice :)

 

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5 minutes ago, Pop321 said:

This was always Help to Sell. 

It feels almost criminal. In a normal market, if a price if too high for your customers you have to drop the price. The government bring in HTB so developers can sell at the price they want by shoring up the purchasers ability to pay *but* once someone buys the flat, its no-longer new build, so when the owner in turn tries to sell there's no government funded aid for their potenital buyers.

So the market will eventually correct, the government have just designed it so that its the public who get lumbered with the losses not the developers.

 

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1 hour ago, lostinessex said:

So the market will eventually correct, the government have just designed it so that its the public who get lumbered with the losses not the developers.

 

 While there are people in London who have borrowed 40% and will be in a financial mess, there are others who bought 4 or 5 years ago outside London borrowing 20% where the cash amount back to the Government has gone up quite a lot.

The profit made by the Government will off set any loses taken by HTB in London , the only losers will be those HTB buyers who are repossessed or sell at a loss.  

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