The Help to Buy scheme, which aimed to help aspiring homeowners onto the property ladder, has recently been exposed as a significant moneymaker for the government. New research reveals that while homeowners have seen their property values appreciate, they now face soaring interest rates at the end of their initial five-year interest-free period. This revelation has sparked concerns for homeowners across the UK.

Launched on April 1, 2013, the Help to Buy scheme provided an equity loan of up to 20% (and 40% in London) on the purchase price of new-build homes valued up to £600,000. Homeowners benefited from a five-year interest-free equity loan. However, they must pay back a share equal to the government's initial contribution upon selling their properties.

According to research by Benham and Reeves, almost every region in England has seen the government make substantial profits. The East Midlands emerged as the most profitable area, with the government's share in a typical Help to Buy property increasing by £8,920. Other regions, such as the North West, South West, and West Midlands, also saw substantial profits for the government.

London was the only region where the government's share decreased, with a reduction of £1,590 in potential profit. Despite the regional differences, many Help to Buy homeowners have reached the end of their interest-free period, just as interest rates are rising.

During the first year after the interest-free period, homeowners face an interest rate of 1.75%. However, this still means increased costs. In London, the average annual interest and management fee for the sixth year of a Help to Buy loan and the first year of the non-interest-free period amounts to £3,455, or £288 per month, in addition to the mortgage costs.

In regions like the North East, where prices are at their lowest, homeowners still experience a significant increase of £751 in their annual Help to Buy repayments.

Beyond the first year, interest rates escalate annually by the Retail Price Index inflation plus 1%. This figure has risen significantly recently, reaching 9.0% in July 2023. For homeowners approaching their seventh year, monthly interest payments are set to climb even higher.

Remortgaging options are limited, with many banks unwilling to assist with Help to Buy homes. This leaves homeowners with the only chance of selling their homes, which could prove problematic for those who may have fallen into negative equity.

As the flaws in government housing incentives focused on boosting demand rather than supply become evident, homeowners must seek professional advice and explore their options.

If you're a Help to Buy homeowner concerned about the rising costs and potential consequences, contact the stevensdrake conveyancing team today. Our experts can guide you in navigating this challenging situation and help you make informed decisions about your property.

Information gathered from Today’s Conveyancing, see here.