24-04-2013

Is The Help To Buy Scheme For You?

Homebuyers wanting a new-build property will be offered a lifeline from the government on Monday 1 April when funding for an interest-free loan becomes available, as part of the Help to Buy scheme. However, is opting for a new house or flat your best option?

A raft of government and industry-backed finance schemes have been launched to encourage builders to build more, but poor workmanship, delays and unexpected costs can all turn a buyer's dream into a nightmare. At the end of 2011, Which? surveyed 200 homeowners who had bought new in the past five years and found that more than half had experienced problems.

"A new-build home can appear less problematic than buying an older property, and it may be easier to get a mortgage, especially with a small deposit," said a Which? spokesperson. "However, you could experience delays in the completion or be hit with unexpected costs."

Here we take a look at what you need to know before you decide to buy new.

Finance packages available

The interest-free loan part of Help to Buy will be offered from 1 April 2013 and limited to people who want to buy new-build. It is similar to the existing First Buy scheme, but this time it is available to existing homeowners as well as first-time buyers. First Buy was launched in September 2011 and, according to the government, by September 2012, 7,000 people had taken it up.

Under Help to Buy, borrowers need to raise 5% of the value of the property, but can borrow a further 20% on an interest-free basis from the government. The biggest loan available will be £120,000.

The loan must be repaid when the property is sold. However, if you want to repay it in part or in full, without selling your property, you can do this by "staircasing", or paying back in stages at any time as long as 12 months have passed since the property was purchased.

After five years, the loan will attract interest at 1.75%, which will rise annually by the RPI rate of inflation plus 1%.

Last week, NatWest launched its Help to Buy offering: a two-year fix on a 75% loan-to-value at 3.15% with no fee. Halifax has a two-year fix at 3.89% with no fee or at 3.49% with a £999 fee.

Pros of buying new-build

Plenty of people buy new-build because of the perceived lack of hassle with maintenance and the fact that you in effect have a blank canvas on which to make your mark.

New homes also tend to be more energy efficient – though you might be surprised that many are not more so. They must have an energy efficiency rating of at least C (rates are between A and G), with higher requirements for housing association and council homes. Many do not score above C – so don't necessarily expect to buy an A rated home if you are buying new.

The majority of new-build homes also come with a guarantee from the builder. If the property is registered with the National House Building Council (NHBC), it'll come with a 10-year warranty and protection scheme.

... and the cons

The biggest downsides are often cited as depreciation and space. A new property is only 'new' for a very brief period, and you will be paying a premium for its newness, much as you do when you drive a new car out of a showroom.

Plenty of buyers make a commitment to buy before the property is finished, and often rely on the developer's show home to get an idea of what they're signing up for. However, developers will use crafty tricks to make you think there is more space than there is. Furniture will often be minimal and scaled down to give an illusion of more space.

For example, a double bed will be 4ft rather than the more standard 4ft 6in. Flattering lighting, wall mirrors and glass-topped furniture can all add to the feeling that you're buying a much bigger home than you are.

A shiny new property can also hide a multitude of sins. In the Which? survey that identified the extent of new-build niggles, a quarter of problems related to boiler issues, while 16% of people experienced difficulties with their utilities, and 12% were faced with structural problems.