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The end of the Help-to-Buy scheme

by Madaline Dunn

The Help-to-Buy scheme came to an end on the 31st of October, with many experts commenting that it leaves behind a “mixed legacy.” You might be curious to learn what’s next for housing schemes, considering that the housing market has been on a bit of a rollercoaster as of late.

So, at The Salary Calculator, we’ll walk you through the following:

• What the Help-to-Buy scheme offered
• When and why it is ending
• Whether there are any alternatives on offer.

The Help-to-Buy scheme

The Help-to-Buy scheme was introduced back in 2013 and offered first-time buyers (FTB) the ability to purchase a new-build property with a minimum 5% deposit. As part of the scheme, the government lent up to 20% of the purchase price – or 40% in London, which was interest-free for the first five years. Participants in the scheme would borrow the rest from a mortgage lender.

Since 2013, 350,000 buyers have used the Help-To-Buy equity loan scheme to purchase homes, and in the last quarter of 2018, it actually accounted for over 60% of all new home purchases.

According to some commentators, the scheme helped many “break free from the shackles of the rent trap and begin to build property wealth.” Likewise, for those who decided to join the scheme, there was no maximum household income cap, and people had 25 years before they needed to pay back the loan in full. However, it was not all sunshine and roses. Help-to-Buy was also only available on new-build homes, meaning that property developers have made a killing. Additionally, it wasn’t offered by all lenders, and after the initial five-year period, those on the scheme would be charged an annual fee of 1.75% on the amount of the outstanding loan, increasing each year with inflation and becoming more expensive over time, repaid in chunks of at least 10%.

When and why is it ending?

As outlined above, the Help-to-Buy scheme was not without its critics and has been criticised for inflating house prices and making housing less affordable. Over the years, the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development have highlighted these dangers. Back when the scheme was first introduced, the IMF warned that while the scheme might temporarily “boost confidence” in the housing market, in the long run, the result would ultimately be “mostly house price increases,” working against the government’s aim of stimulating activity in the housing market and boosting access to housing. Years later, in 2022, this was exactly what was found in the House of Lords (HoL) committee report, which found that the scheme was detrimental to FTB and they would have been in a better position if the scheme had never been introduced.

The government has announced that the Help-to-Buy scheme will end in March 2023 without an extension. That said, Housing secretary Robert Jenrick has said that “all options are on the table,” so an extension is not completely off the cards. For example, ​​Adam Day, estate agency growth leader at eXp, said: “With so many changes ahead for the UK Government, there is the possibility we could see a replacement scheme introduced in the coming months. Only time will tell.”

There are some key dates to bear in mind, though. The Help-to-Buy deadline for new applicants was the 31st of October, while applicants will have until March 31, 2023, to complete housing purchases through the scheme. The Help-to-Buy ISA, on the other hand, closed to new savers back in November 2019.

Is anything replacing the Help-to-Buy scheme and what are the alternatives?

As of yet, there are no plans to replace the Help-to-Buy scheme with another similar scheme; however, the Help-to-Buy ISA has already been replaced with the Lifetime ISA (LISA), which offers a similar 25% bonus on savings paid at the end of each tax year. Through the LISA, you can deposit more each year (and over a longer timeframe), meaning that the total bonus can be potentially much bigger.

If you’re looking for an alternative, it’s also worth looking into the First Homes scheme, which was launched in 2021 for FTB and key workers, with the intention of helping them onto the property ladder with a minimum 30% discount on the market price of certain new builds. To apply, you must earn less than £80,000 per year (£90,000 in London) and put down a 5% deposit. However, speaking about this option, Mark Robinson, managing director at Albion Forest Mortgages, commented: “The government has done very little to replace the Help to Buy scheme, announcing the First Homes scheme during the pandemic, but then not really supporting it further. As the First Homes scheme isn’t widely available and doesn’t appear to be changing to be more widely available, it is not really a viable replacement.”

The Deposit Unlock scheme also enables first-time buyers and existing homeowners to buy a new home with a 5% deposit. Robinson made a similar comment about the Deposit Unlock scheme, saying it didn’t offer anything new.

The shared ownership scheme can also be a way of helping first-time buyers get on the property ladder, and works by allowing buyers to secure a mortgage to buy a stake in a property. This is usually between 25% and 75%, with the buyer paying rent on the remaining share they do not own. Stamp duty is also typically deferred until the buyer is able to increase their share to 80%. Of course, there are a number of downsides that come with shared ownership too. For example:

• While only having a percentage share in the property, you are still required to pay full maintenance and repair costs,
• Increasing the stake you own in your property, or “staircasing,” can be expensive (valuation fees, legal expenses, mortgage fees, etc.),
• Due to only owning a share in the property, you’ll likely have to ask the housing provider’s permission in writing to make structural alterations to your home and redecorate.

Tags: help-to-buy, houses, housing market, Mortgages

Mortgage rates and house prices 

by Madaline Dunn

While Liz Truss recently announced a U-turn on one of the most unpopular items in the mini-budget, scrapping the 45p rate on the highest earners, the effect of the emergency budget has been wide-ranging and is having a huge impact on the housing market.

Breaking news about house prices, mortgage deals and interest rates have hit the headlines, with the UK in financial turmoil. In the hubbub of it all, it might be hard to know where you actually stand, and it’s understandable to be concerned about what the news means for you and your home or housing dreams.

At The Salary Calculator, we’ll explain:

• How interest rates have been affected by the recent budget and what’s going on with mortgage deals
• How house prices are faring
• What the experts are advising

Interest rates and mortgage deals

The Bank of England raised interest rates from 1.75% to 2.25% in September, and following the announcement of the mini-budget, there were predictions that the Bank of England could be forced to raise the base interest rate to 6% next summer. This resulted in nearly 1,000 mortgage packages being pulled overnight from the British market. According to Moneyfacts, 935 out of 3,596 mortgage products were wiped between Tuesday and Wednesday, doubling the record high of 462 back at the start of the lockdown.

This week, it has been announced that the UK’s largest mortgage lenders are putting deals back on the market but also raising rates once more. Moneyfacts outlined on Tuesday that the average new two-year fixed rate jumped to 5.97% – this is despite having already risen to 5.75% on Monday. Halifax, part of Lloyds Banking Group, for example, announced on Wednesday that it would be updating the rates on its homebuyer mortgage rates. The result is that its rate for a two-year fixed deal for a customer offering a 25% deposit is up from 4.61% to 5.84%, while a five-year fix with the same deposit will now stand at 5.44%, and a ten-year fix will be at 5.34%. This is similar across the board.

Alongside those trying to enter the housing market, around 1.8 million fixed deals are scheduled to end next year, meaning that many people are going to be faced with high costs when it comes to taking out a new mortgage.

Of course, the news has been devastating for millions. New research by Property Rescue, which considered the perspectives of over 1,000 UK-based homeowners, found that over a third of homeowners are worried they may have to choose between heating bills and mortgage payments. Not long ago, there were reports of people having to choose between food and heating; now, the roof above their heads is in question. The study, conducted by Perspectus Global, found that 41% will now have to turn to their savings, and 21% believe they may have to sell their homes due to skyrocketing mortgage interest rates.

Speaking to those who are concerned about their mortgage prospects, Rachel Springall, a finance expert at Moneyfacts.co.uk, said: “Seeking advice from an independent broker would be wise, especially for those borrowers who have not yet started the mortgage process and are deterred by the level of choice and much higher mortgage rates than they were perhaps anticipating.”

House prices to fall

While statistics had recently shown that average asking prices were 8.7% higher in September than a year ago, following the mini-budget fiasco, house prices are now projected to fall, at least in London, according to estate agent Knight Frank. Specifically, the agent predicted a fall in the average house price by 10% over two years. Similarly, Capital Economics predicted that “despite the reduction in stamp duty,” this is the beginning of the most “significant correction” in house prices since 2007. They added: “The sharp rise in interest rates now expected means that prices are more likely to fall by 10-15% than the 7% we previously anticipated.”

Pantheon Macroeconomics senior UK economist Gabriella Dicken, on the other hand, while projecting a more conservative fall in house prices, said it “was the start of a prolonged fall in house prices” and that she expected “house prices to fall by around 5% over the next 12 months”.

Discussing the recent impact on interest rates and mortgage deals, Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “It’s difficult to see this as anything other than a sign of things to come, as these pressures raise the risks not only that price rises stagnate, but that they begin to fall. There is the chance that we could see a significant correction in the coming months.”

What are the experts advising

With so much uncertainty around the housing market, some mortgage experts are advising those on a fixed rate with a term of 18 months or less to reach out to their broker and consider their remortgage options. Meanwhile, Martin Lewis says that people should only overpay if their mortgage rate is higher than the rate they’d earn saving: “As a simple example, £10,000 in savings at 2% earns £200 for the year, yet use it to overpay a 3% mortgage and it reduces costs by £300 for the year. Effectively overpaying is tax-free ‘saving’ at the mortgage rate, so if the rate’s higher than savings (after tax) it wins,” he said.

For those entering the housing market for the first time, Chris Sykes at Private Finance, a mortgage broker, said it’s important to make sure your finances are in order and your credit score won’t let you down. He explained: “Borrowers need to be careful in tough times, as something as small as getting a CCJ [county court judgment] by refusing to pay a £60 parking fine, or missing payments on utility bills after moving out of a property, can affect the lenders at a borrower’s disposal, and affect their interest rates if these were recent and they have little other credit presence.”

Ultimately, make sure to think things through and access independent advice before you jump into any decisions related to your mortgage and housing. Moreover, if you’re struggling with mortgage payments, reach out for help as soon as you can. The likes of  Citizens Advice, StepChange, or National Debtline can be of help here.

Tags: cost of living, house prices, housing market, interest rates, mortgage deals

Mortgages and interest rate increases

by Madaline Dunn

The latest figures shows that in the six months to May, UK mortgage rates rose at their fastest pace in ten years. According to research by Hamptons estate agents, this interest rate rise means that it is now cheaper on a monthly basis to rent than to buy. Moreover, over two million households in the UK will see mortgage payments rise.

If you have a mortgage, the headlines are likely causing confusion and concern, and it can be challenging to know where you stand.

At The Salary Calculator, we’ll walk you through:

• What’s happening to interest rates on mortgages and how people will be affected, and
• What options do people have to navigate soaring costs

The interest rate rise and its effect on mortgages

In an effort to address rising inflation, the Bank rate rose from 1% to 1.25% and there have been further warnings that this could increase to as much as 3% by the end of the year. The rate hasn’t been above 1% since 2009, following the financial crash.

According to David Hollingworth, L&C associate director, this means “an entire generation of homeowners used to low rates could be facing a shock. Adding: “Although rates remain low in historical terms the available deals have already risen rapidly. Our analysis shows that the average of the ten largest lenders’ lowest two-year fixed rates for remortgages have already trebled since the lows of last October. That is an increase of more than £130 per month for a £150,000 25-year repayment mortgage.”

But, what does this mean for those with mortgages? Well, those on standard variable rates (SVRs) or tracker rates will be hit the hardest, with the former seeing an average annual increase of £191, and the latter £303, according to UK finance. This will also impact around 2.25 million homes (a quarter of mortgage borrowers).

Those who are on fixed rates (85% of all mortgages), however, will not have to deal with the increase until they remortgage. That said, 1.3 million borrowers are set to come to the end of their fixed-rate deals this year. According to Moneyfacts.co.uk, those remortgaging onto a fixed rate deal will be faced with average rates of around 3.25% for a two-year fix and 3.37% for those locking in for five years.

It’s not just those with mortgages who will feel the sting either. Tom Selby, head of retirement policy at AJ Bell, outlines that renters will also be on the receiving end of this hike and “also likely see costs increase.” Speaking to Sky News, he said: “Landlords will inevitably pass on their own higher costs, although when this happens will depend on the terms of your rental agreement.”

Discussing the impact that these rising rates will have on people, Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said that rising prices and rates risk will lead to people being trapped in pricey mortgages that they’re unable to escape, turning them into “mortgage prisoners.” Unfortunately, though, this is already happening and according to Rachel Neale, lead campaigner for the UK Mortgage Prisoners group, over 200,000 people in Britain have already been put in this position.

What are the options?

Looking ahead, it’s likely that rates will climb further. Grainne Gilmore, head of research at Zoopla, said to cope with this, “locking into a rate shortly could save hundreds over the longer-term.”

Meanwhile, for those whose mortgage is set to expire in the next six months, it might be a good idea to remortgage, as it could work out cheaper than later on (for example, November or December’s average rates.)

It has also been recommended by some that overpaying now could save you money in the long-term; Alice Haine, personal finance analyst at Bestinvest, said: “Paying down debt or adding an extra monthly sum to their emergency fund would also strengthen their financial reserves against the myriad of challenges ahead.”

Some lenders are also offering help. For example, Nationwide has expanded its lending ratio, and introduced a simple switcher process. Santander, on the other hand, has introduced a 5% deposit for first-time buyers. At the end of June, it was also announced that from 1 August, borrowers’ finances won’t be subjected to the mortgage market affordability test, where banks and building societies calculate how much to lend.

Mortgage Prisoners UK, a not-for-profit organisation that campaigns for fairer mortgage rates for all, argues not enough is being done, and has called on the government to take action. However, in a statement, a Treasury spokesperson said: “We know that people are struggling with rising prices and worried about the months ahead. That’s why we’ve stepped in to ease the burden, helping eight million of the most vulnerable British families through at least £1,200 of direct payments this year – and giving every household £400 to help pay their energy bills.”

Adding: “As part of our £37bn support package we’re also saving the typical employee over £330 a year through the imminent National Insurance tax cut, are allowing Universal Credit claimants to keep £1,000 more of what they earn and have made the biggest cut to all fuel duty rates ever.”

Tags: cost of living crisis, Economy, housing market, interest rates, Mortgages

The rising rent issue

by Madaline Dunn

Rent prices in the UK ​​are rising at the fastest rate in five years, further hiking up the cost of living as millions of people feel the squeeze. As the ‘cost of living crisis’ continues, politicians have commented that it’s a “very difficult time” but are failing to take meaningful action.

As more and more low-income tenants are forced to make ‘heat, eat or pay rent’ choices, many argue there has never been a better time to reintroduce rent controls to help address the crisis.

The latest news is undeniably distressing, but at The Salary Calculator, we’ll make sure you’re up-to-date with the latest on personal finance. In this article, we’ll walk you through:

• Why rent prices are rising
• What the experts are saying about the situation
• Whether calls for rent controls are being taken seriously

What’s going on with rent prices?

In the UK, rent prices are on the rise, with statistics from ONS showing that this rise is at the fastest rate in five years. Research shows that the average annual UK rental growth has also reached a 13 year high, with rents increasing by 8.3 % by the end of last year. Unfortunately, there is further bad news, with Rightmove predicting that rent will increase by another 5% in the year ahead. Reports have revealed Wales and the northwest of England saw the largest increase in asking rents. There, rent prices increased by 12%, while in the southwest of England, rent rose by 11%.

Of course, this pinch is pushing many to the brink. Back in 2021, Citizens Advice revealed that half a million private renters in the UK were behind on their rent, with an estimated £360 million owed UK-wide, and within the last year, the situation has not improved. Together, housing charity Crisis and Heriot-Watt University have forecast that over 66,000 more people will be homeless by 2024. Likewise, a survey of 155 English councils found nine in ten town halls expect to see a surge of evictions from private rented homes in 2022.

So, exactly why are rent prices so high? Well, right now, there’s a high demand for renting and a low number of rental properties available, which is in part due to Covid-19’s disruption to the housing market. Propertymark, the membership body for property agents in the UK, has even warned that the situation is likely to worsen, with more landlords planning to exit the market due to “increasing regulation and taxation.”

Sarah Coles, a senior personal finance analyst at Hargreaves Lansdown, calls this predicament a “dual problem” for renters, whereby rents rise while there are fewer properties on the market to choose from. Speaking to i News, she said: “No wonder we’re hearing so many stories of renters getting dragged into bidding wars, where they’re forced to pay more than the advertised rent in order to have somewhere to live.”

What are the experts advising?

When faced with rent hikes, often it feels like landlords hold all the cards, and there is nothing you can do as a renter to fight back, however as a renter, there are a few things you can do.

Renters are well within their rights to question why their landlord is increasing their rent. Likewise, it’s important to remember that landlords can’t just increase their rent prices by how much they want or whenever they want.

Once you’ve found out why your landlord is hiking your rent, you can also try to negotiate on the price. When negotiating, Citizens Advice recommends that tenants look at similar properties in the area and use those rent prices as “evidence” to show why the hike shouldn’t go ahead or that it should go ahead at a lower rate. The organisation suggests that often landlords will prefer to negotiate rather than lose their tenants.

That said, negotiation isn’t always possible, and in situations where tenants feel like they’re running out of options, they can appeal to a tribunal for rent complaints.

Unfortunately, if you’ve exhausted all your options, you may have to look into downsizing, becoming a lodger, sharing a house with other tenants, or moving into a cheaper area. Speaking about the terrible ultimatum renters are being faced with, Coles said: “Those hoping to stay in their home for another year are facing huge rental hikes. If they can’t afford it, they face the horrible expense and upheaval of a move – as well as the prospect of trading down to something smaller or in a less expensive area.”

Calls for rental controls

It is undeniable that the housing market is out of control in the UK, and to combat this; some are calling for rental controls to be reintroduced back into the UK. Rental controls are regulations that ensure the affordability of housing, and place a cap on the amount a landlord can charge tenants when leasing a new property or renewing a lease. These controls were essentially removed back in the 1980s during the Thatcher era, with the Housing Act 1988.

Now, Sadiq Khan, Mayor of London, is leading the call for change in London, and in the past has said that introducing rent controls in London could act as a “blueprint” for other cities with out of control rent prices.

Elsewhere, in Bristol, local housing chief, Tom Renhard, is lobbying Ministers to access rent control powers and wants to involve other core cities with this plan. The cabinet member for housing and communities argues that while there are “some good landlords”, there are also “a lot of terrible ones.” Adding: “Some [landlords] aren’t doing the repairs even now when rents are going up. If you can’t afford to upkeep a home, then why are you renting it out? People deserve to live in a home that’s fit for human habitation.” Bristol City Council is subsequently held a “Renting Summit” on 2 March 2022 to explore this.

Tags: housing market, Personal finance, rent