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Understand the Help to Buy Before you Sign Up

Since the government introduced the Help to Buy scheme in October 2013 around 46 homes have been purchased in the Ludlow area with assistance from the scheme. It is good to hear that the scheme is helping activity increase in our local property market, albeit in a small way.

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Slightly Sceptical

I have always been slightly sceptical about this scheme because I feel that there is a lot of focus on the advantages of the scheme but little said about the potential disadvantages.

There is no doubt that the scheme offers the opportunity to many purchasers to buy a new home that would otherwise be out of their reach, but borrowing more money than you can afford to pay back now, in the hope that your position will have improved in five years, is not a decision to be taken lightly.

Interest Will Increase

Although you will have the loan for five years interest free, after the initial period the rate of interest applied to your loan will increase year on year. In the first year you will pay 1.75% but each year the rate will then rise by 1% plus any increase in RPI.

We all like to be optimistic about our financial future, hoping to be in a better position in five years time, but the amount you will need to repay your Help to Buy loan is not fixed. The uncertainty of this arrangement makes it difficult to budget and some property experts are concerned that if the housing bubble bursts again, home owners with Help to Buy Equity Loans may find themselves in negative equity.

Understand the Pros and Cons

My advice is to make sure you understand the Pros and Cons of the scheme and take proper advice before making any commitment to buying a house. Consider all the options available and remember to cut your cloth to suit your measure!