When contemplating property ownership, you ponder many factors: location, size, type, price, and, most importantly, the potential resale value. The UK Government introduced the Help to Buy scheme in 2013 to lend a hand to struggling first-time buyers. This initiative has since influenced the housing market in ways that may affect the resale value of your property.
How the Help to Buy scheme works
The Help to Buy scheme was designed to help first-time buyers and existing homeowners purchase a new-build property. The government lends buyers up to 20% of the property price in England and up to 40% in London. Subsequently, buyers only need to raise a 5% deposit and a 75% mortgage to make up the rest of the property price.
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The loan is interest-free for the first five years. From the sixth year, a 1.75% charge is applied, which then rises each year based on the Retail Price Index plus 1%.
The scheme has allowed many to step onto the property ladder earlier than they might have otherwise been able to, but how does it affect the resale value?
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The impact on resale value
The Help to Buy scheme has had a profound impact on the property market since its inception. It has driven up the demand and consequently, the prices of new-build properties, as they are the only ones eligible for the scheme.
On the surface, this might appear beneficial for your property’s resale value. However, bear in mind that upon selling a Help to Buy property, you’re required to repay the government loan, which is a percentage of the current market value, not the original loan amount.
For example, if you received a 20% equity loan to buy a £200,000 property and the property’s price increases to £250,000 by the time you sell, you’ll have to repay £50,000 – 20% of the current market value – to the government.
This could potentially reduce the profit you’d make on the property’s increase in value, impacting the resale value from your perspective.
The influence of market conditions
The Help to Buy scheme’s impact on your property’s resale value is also largely dependent on market conditions. The property market is influenced by numerous factors, including interest rates, the economy, and buyer confidence.
If the market experiences a downturn and property values decrease, you’ll still be required to pay back the original loan amount, even if your property’s price has dropped. This could result in a loss when you sell your property.
However, if the market is booming and property prices are rising, you stand to gain from the increased value of your property, despite the repayment of the government loan.
Building equity over time
Building equity in your property over time is an important consideration when contemplating resale value. Equity refers to the portion of your property that you truly ‘own’, which increases as you pay off your mortgage.
With the Help to Buy scheme, you can start to build equity in your property from the moment you buy. Each mortgage payment you make boosts your equity, potentially increasing your property’s resale value.
However, remember that the value growth of your property will also increase the amount you’ll owe the government when it comes time to sell.
Navigating the end of the Help to Buy scheme
In 2023, the UK Government announced that the Help to Buy scheme will end in 2023, creating uncertainty in the housing market. The scheme’s end could potentially impact the demand and prices of new-build properties, which may in turn affect the resale value of your property.
Those who bought properties using the scheme could potentially face challenges selling their properties in the future, due to the repayment requirements of the government loan.
Furthermore, if the scheme’s end leads to a decrease in demand for new-build properties, this could also impact your property’s resale value. However, it’s also possible that the end of the scheme could lead to increased demand and higher prices in the second-hand market.
In conclusion, the impact of the Help to Buy scheme on the resale value of your property is complex and dependent on various factors. It’s essential to weigh all these considerations when planning your property purchase or sale.
The future implications after the Help to Buy scheme
As the Help to Buy scheme draws to a close, it’s essential to consider the future implications and how they might affect your property’s resale value. Until now, the scheme has significantly influenced the housing market, particularly in relation to new-build properties. With its end approaching, this influence is set to change, and it’s important to understand how this might impact your property.
The demand for new-build properties may decrease, as they will no longer be uniquely eligible for government assistance. This could lead to a drop in their prices, potentially reducing the resale value of your property. However, this isn’t necessarily a certainty. It’s possible that the market will adjust, and other factors will come into play to sustain the demand and prices of new-build properties.
The end of the scheme might also shift the focus to the second-hand market. Without the Help to Buy scheme, first-time buyers might turn to second-hand properties, pushing up their demand and prices. This could potentially increase your property’s resale value, especially if it’s a second-hand property.
Furthermore, the repayment of the government loan could become an issue for those who bought properties using the scheme. The loan is a percentage of the current market value, not the original loan amount. If the market value of your property drops, you could find yourself repaying more than your property is worth, which might lead to a loss when selling the property.
Therefore, it’s crucial to be aware of these potential implications and to plan your property sales or purchases accordingly.
Conclusion
The Help to Buy scheme has undeniably shaped the UK housing market since its introduction in 2013. It has played a role in the prices and demand for new-build properties and has potentially affected the resale value of properties purchased through the scheme.
However, the impact on your property’s resale value is not just reliant on the scheme itself, but also on wider market conditions, as well as how much equity you build over time. And with the scheme set to end in 2023, these factors could play an even more significant role in determining the resale value of your property.
While the scheme has provided opportunities for first-time buyers and existing homeowners, it’s also introduced complexities when it comes to resale value. Therefore, it’s essential to fully understand these complexities and to carefully consider all financial implications, both now and in the future.
In the end, the Help to Buy scheme is just one of many factors that can influence the resale value of your property. It’s important not to overlook other factors such as location, property type, and market trends. By considering all these factors, you can make informed decisions, and hopefully achieve the best possible resale value for your property.
