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Help to Buy 2 borrowers ‘paying vastly more’ than renters

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18/11/2013
Renting a property is cheaper than paying a Help to Buy mortgage at 95% loan to value, according to PricedOut.
Help to Buy 2 borrowers ‘paying vastly more’ than renters

The campaign group claims that the monthly repayments on a Help to Buy 2 mortgage for a buyer with a 5% deposit would cost between £26 and £296 more than the average rent.

PricedOut spokesman Dan Wilson Craw said Help to Buy will not help the average first-time buyer:

“When tenants see house prices rising they will feel pressure to take advantage of a 95% loan-to-value mortgage. But in doing so, many will find themselves overburdened with debt and will be paying vastly more than they would in rent, particularly in the South.

“And that’s even before you consider the impending interest rate rises a few years down the line.”

An average first-time buyer in London using the Help to Buy 2 scheme will pay £1,437 per month, the group said.

This is based on an average house price of £256,000, a 5% deposit of £12,800 and an interest rate of 4.99%.

By contrast, the average London rent is £1,141 per month.

However, The Model Works founder Brian Hall has calculated first-time buyers who spend their twenties renting could lose out on £270,000 because of rising rents.

He said mortgage repayments are pegged to the original purchase price: “The issue is not the cost on day one. It is the cost in 20 years’ time. Rent goes up with inflation whereas mortgage repayments don’t.”

Referring to PricedOut’s analysis of London prices, Hall said a property price of 5% per year will mean the tenant makes no progress towards closing the gap in savings:

“Had they bought the same property they would have realised £12,800 in equity.

“Of course property prices may rise and they may not. We need to consider the risk issues of 95% loans in an unstable and already overvalued market, with no exit plan for the taxpayer, but this is another issue altogether.”

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