First-time Buyers

Help to Buy properties carry a 10% premium

Christina Hoghton
Written By:
Christina Hoghton

Equivalent homes could be available for less for those who don’t need to use the Government-backed affordability scheme

First-time buyers using the Help to Buy scheme in England pay a premium of 10% for their new home, according to reallymoving.

The home move services firm found that the price of homes available through the Government-backed scheme were bumped up compared to equivalent properties in the area.

It collected data from 41,500 first-time buyers over the last year, and worked out that those purchasing a new build home with Help to Buy in England paid on average £303,450. Calculated at postcode area level to account for regional variations, the premium paid by those using Help to Buy Equity loans was 10.3%.

What is Help to Buy?

The scheme helps aspiring homeowners to buy a new home with just 5% equity, topped up with a Government loan of 20% (or 40% in London) which is interest-free for the first five years. They borrow the remainder (up to 75% of the property’s value) as a mortgage.

The current scheme will be replaced by a new version launching in April 2021 that will be restricted to first-time buyers and include regional price caps. It will run for two further years before closing in March 2023.

Where are the highest premiums?

The Help to Buy premium is highest in the north and parts of the Midlands, with first-time buyers using the scheme in Yorkshire, the West Midlands and the North West paying approximately a fifth more (21.6%, 21.5% and 19.9% respectively) than those buying new homes independently.

Scotland has also seen a rapid increase in the premium paid by those using Help to Buy over the last year, peaking at 14.7% in September 2019.

In London, the Help to Buy premium has remained stable over the last year at 11.8% – marginally higher than the England average.

CEO of reallymoving, Rob Houghton, said: “First-time buyers find it difficult to raise a deposit and as a consequence they are being cornered into the new build sector, where homes already command higher prices, before paying an additional premium on top if they need to use a Help to Buy Equity Loan. In many cases they simply don’t have the deposit required to explore other options such as buying a second-hand home, which may offer considerably better value.

“When buyers come to sell, they could find themselves in negative equity and unable to compete with new developments nearby offering Help to Buy, forcing them to accept a lower price. It’s important that those using the scheme consider their exit strategy, including whether or not they can afford the loan repayments on top of their mortgage when the interest-free period comes to an end.”