As Mark Twain didn’t quite say, there are only three certain things in life: death, taxes and yet another government-backed bung for the housing market. The latest instalment is the 2021 to 2023 Help to Buy scheme, which carries on the theme of offering subsidised loans to first-time buyers – and only first-time buyers.
Here’s what is on offer—from April. Buyers can take out a loan of between five and 20 per cent of the purchase price of a new home (or up to 40 per cent in London). There is a cap on the property price on which the loans are available varies from region to region, ranging from £186,100 in the North East to £600,000 in London. First, the good news: there is no interest payable on the loan for the first five years – just a management fee of £1 a month, which ought not to be too much of a problem for most buyers.
But beware: this isn’t an ordinary loan, where the amount you owe stays flat until you pay it off. It is what is termed an ‘equity loan’, which rises (or shrinks) with the value of the property. If the value of your home rises 20 per cent in five years, so will the amount you owe. Keep your loan beyond year six and there will be interest to pay, too – and here’s where it gets fiendishly complex. In year six the interest rate will be 1.75 per cent. Thereafter, the interest rate rises in line with the Consumer Prices Index (CPI) plus 2 per cent. So, if CPI is 2.5 percent it means that your interest rate will rise by 4.5 per cent. But that’s not an extra 4.5