Help to Buy collapse could leave thousands in negative equity

A collapse of the government’s Help to Buy scheme could leave hundreds of thousands of homeowners in negative equity, research from property site OkayLah has found.

The amount that people using the scheme have had to pay for a property has risen to more than the worth of the homes on average.

In Q2 of 2013 when Help to Buy was introduced, the average first-time buyer house price was £197,000, with the price paid per a Help to Buy property just £186,091, making them over £10,000 better off as a result of using the scheme.

But by Q3, this had fallen to just over £6,000 better off, with a complete turnaround coming by Q4 with the average Help to Buy house price exceeding that of the average first-time buyer by £7,714.

Today the average first-time buyer house price is £236,000, however, those buying through the Help to Buy scheme are forking out a staggering £298,927 – a different of £62,927.

This deficit has been increasing each quarter and could leave many in danger of negative equity should the housing bubble burst and prices plummet.

Paul Telford, founder and chief executive of OkayLah, said: “It’s quite astonishing how out of shape the Help to Buy scheme now looks against the backdrop of the rest of first-time buyer market across the nation.

“While it was implemented with the best intentions and initially did serve as intended, the consequences of further fuelling demand in an area of the housing market that was already in desperate need of additional stock is plain to see.

“What’s perhaps more alarming is that as much as half of the £1bn or so made by the nation’s biggest house builders has come from the government subsidised scheme and essentially straight out of the pocket of taxpayers.

“Not only has this pushed Help to Buy prices up massively, but it leaves those buying through the scheme on vary precarious ground.

“While we are unlikely to see a market crash despite the slowdown caused by Brexit uncertainty, a notable softening of property values would leave many in negative equity when considering their Help to Buy property within the wider landscape of the first-time buyer market climate.”

Jonathan Burridge, sales manager at The Mortgage Broker, said: “One would hope that the independent surveyors which assesses the price on behalf of the lender would identify any such premium being paid on a Help to Buy transaction above a comparable open market purchase.

“We have not experienced above expected levels of discrepancy between purchase price and independent valuation for new build, so, I would be compelled to question the conclusions arrived at.

“That’s not to say that Help to Buy has not helped fuel house price inflation and that developers have been making handsome profits as a result. Seems to me that this press release is simply click-fodder. I wish them well with their venture.”

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