A specialist team of conveyancing solicitors and property lawyers have extended a helping hand to homeowners facing looming interest rates by offering an expedited route to redeeming their Help to Buy loan, as thousands of government incentives reach maturity.
Originally introduced approximately five years ago, the government loans were designed to help first time buyers get onto the property ladder and existing home owners upscale with a five-year, interest-free loan for as much as 40% of the property price in London and 20% elsewhere. A secondary aim was to encourage property developers to build more new homes to meet the demand and wider target market.
The equity loan offer was snapped up by thousands of people who wanted to buy a new build home but had a shortfall in the deposit and asking price. Loans were made available for a fixed five-year period of no interest. For those who have taken up the first loans, this timeframe has now lapsed, leaving homeowners with an interest payment to make each month on top of their existing mortgage payment and household expenses.
“The interest free period offered on Help to Buy loans was five years from taking out the loan.” explains Brendon Devraj – Managing Director of Express Conveyancing.
“This period gives buyers time to find their feet and allows a lot of breathing space after making that leap onto the property ladder. However, it does create a false sense of security in that many buyers felt it was something they could deal with at a later date. In real terms what this now means is that those homeowners must start paying 1.75% interest on the total sum borrowed each month from year six onwards. After year six, this will continue to increase further as the RPI increases + 1%. Remember, this is purely interest and does not pay the loan off.”
A think tank study by the Royal Society of Arts this year showed that ‘economic insecurity’ is the new normal and seven in ten workers are chronically broke. This additional interest payment promises to stretch already severely inadequate household budgets.
Brendon adds, “Paying off the loan rather than accepting the interest payment could be a much more economical and financially sound choice in the longer term. Our specialist Help to Buy lawyers can walk you through the process of initiating and settling the loan in full or paying off half the debt (staircase). It is also worth remembering that you will be required to pay the appropriate percentage you borrowed from the current market value of the property and not the monetary sum you borrowed.”