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Help to buy scheme likely to put off first-time buyers

Help to buy scheme likely to put off first-time buyers

Since Chancellor George Osbourne outlined a £132 billion effort to help more Britons buy homes in the new budget, the program has garnered a lot of criticism. What might a new homebuyer fear about the help to buy scheme? Here are the intended advantages, the potential disadvantages and how to weigh them as a future homebuyer.

What is help to buy?

It is a government program meant to make more mortgages available to the home-buying market. As of April 1, 2013, the British government began backing help to buy schemes, ensuring that aspiring homeowners who pass a requirements check and have at least a five percent down payment on a home will receive up to an extra 20 percent of the cost of a home to help them secure a loan.

To take advantage of the financial help the program offers, potential homebuyers can raise money in a number of ways, including long-term saving and selling stuff online. The government-backed loan will be free of interest for the first five years of the term, and thereafter will carry an interest of 1.75 percent plus inflation. This particular scheme, known as an equity loan, is available only for new builds. And starting in January of next year, the government will provide mortgage guarantee for buyers interested in existing homes.

Why is the government funding help to buy schemes?

Help to buy is a government effort to patch up the ailing housing market by encouraging first-time buyers to secure home loans. The hope is that increasing demand will in turn increase the supply of housing, especially new construction.

What are the drawbacks?

Critics of the help to buy program outline potentially large losses for the government and the public as a whole; amongst them is the fear that the scheme will actually make housing more expensive at all price points. While this kind of upward trend would be beneficial for those who already own a home, aspiring homebuyers could find that it stifles their chances of making a financially sound decision to buy. In addition, the government collaboration on the lenders’ side of each deal is said to be complex and difficult to enforce, making the terms of the deal even more difficult for homebuyers who want to understand what they are committing to when they sign on the dotted line.

In contrast, even for first-time buyers who find that they are able to close the deal using the help to buy scheme, there is still a persistent fear that this program could create yet another wave of consumers trapped in mortgage deals that they can’t afford.

For all of its possible drawbacks, the help to buy scheme does outline specific requirements that homebuyers must meet, along with the hurdle of passing his or her lender’s checks. Ultimately, the impact of the program on each homebuyer will be different, but those in the housing market will still find it beneficial to get the facts on the program before applying.

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