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Thousands of first-time buyers in arrears due to Help to Buy 'scheme stress'

Thousands of first-time buyers in arrears due to Help to Buy 'scheme stress'
Victoria Hartley
Written By:
Victoria Hartley

The number of first-time buyers who have fallen behind on mortgage payments has doubled in the last year as soaring inflation and interest rates have put some government scheme users under immense financial pressure.

The Help to Buy scheme, which closed to new applications last year, handed first-time purchasers equity loans of 20% – 40% in London – to help them afford a new-build home with just a 5% deposit.

However, some buyers have faced mortgage and interest charges that are so unaffordable they have had to sell up and rent again, five years into the scheme.

The loan was interest-free for five years, but buyers who have come to the end of this period are finding it increasingly difficult to keep up with the interest payments, which have risen with inflation (currently 6.7%).

After five years, the interest rate on Help to Buy loans taken out from 2013 to 2021 was 1.75% for a year which increased every year by the Retail Prices Index measure of inflation plus 1%. For those who bought more recently, the rate rises by the Consumer Prices Index plus 2%.

Arrears have risen seven-fold in four years

The number in arrears from January to July this year (4,854) leapt up from 2,413 in 2022 and risen seven-fold since 2019, according to Homes England data obtained by The Telegraph. Only 659 people were behind on these payments in 2019.

Figures suggest a typical first-time buyer with a home worth £260,000 today would owe £52,000 if they took out a 20% equity loan. The annual interest payments in their sixth year would be £910. If they were in year seven this year, their payments would be £1,023.

Since it launched in 2013, more than 380,000 people have bought properties using Help to Buy. In the first nine months of 2022, about 20,000 used the scheme.

The Department for Levelling Up, Housing and Communities did not respond to a request for comment.

However, at a Fringe meeting yesterday at the Tory party conference, housing minister Rachel McLean reportedly quashed hopes over the prospect of a scheme revival saying Help to Buy had worked for some but ‘inflates prices’ adding ‘demand has to be balanced by the supply side’.

Khan called for payment freeze

Last month, the Mayor of London Sadiq Khan called on the government to freeze payments for Help to Buy loans as analysis revealed that up to 4,500 London homeowners are at risk of financial hardship as mortgage and household costs continue to rise amid the Help to Buy loan grace period ending.

City Hall noted that by introducing a payment holiday, London-based Help to Buy borrowers could save on average £3,300 a year.

At the time, Khan, said: “People in London using Help to Buy may be on the housing ladder, but many are on low pay and facing growing levels of economic insecurity.

“Ministers could do something to support these households straight away, by suspending or freezing Help to Buy loan payments, giving people breathing space when they need it most.”

Khan’s call for a payment freeze on Help to Buy follows a separate study from the Homeowners Alliance, which showed a third of London mortgage holders will struggle to afford their repayments over the next six months.