Help to Buy mortgages more expensive than renting, say campaigners
PricedOut says most first-time buyers would be better off renting and saving so they could access a better interest rate further down the line.
First-time buyers would be better off renting than buying a home with a 95% mortgage through the government’s Help to Buy scheme, and are being pressured into taking on unaffordable amounts of debt, according to the campaign group PricedOut.
The second part of Help to Buy, which offers lenders a taxpayer-backed guarantee to allow them to offer 95% home loans, launched at the start of October and is designed to help first-time buyers, movers and re mortgagors who have been locked out of the mortgage market because they cannot raise a large deposit.
However, PricedOut said its analysis showed that most would-be first-timers would be better off continuing to rent and increasing their savings so they could access a better interest rate.
The organisation compared the average monthly cost of renting with the cost of repaying an average mortgage around England and Wales and found that the interest rates on Help to Buy loans meant it was cheaper everywhere to rent than to buy.
In London, repaying a 95% loan at a rate of 4.99% cost £1,437 a month based on the price of a typical first home of £256,000, compared with average rents of £1,141.
The gap was smaller elsewhere, but even in the north-east where average rents were £533 a month, according to the latest LSL index figures, PricedOut said it was more expensive to service a 95% mortgage. Its said to repay a loan on a property costing £104,000 would cost a first-time buyer £584 a month.
On Monday, Halifax and RBS, the only lenders so far in the scheme,reported that more than 2,000 people had put in offers on homes using Help to Buy mortgages, despite their rates being undercut outside the scheme. While mortgages from RBS start at 4.99% and Halifax’s cheapest deal has a rate of 5.19%, Cambridge building society is offering a rate starting at 3.99%.
PricedOut said the government was putting families under pressure to get on the property ladder by taking on unaffordable levels of debt when they should be saving for longer.
It said it would be cheaper for people with a small deposit to continue renting and use the difference to keep saving – unless house prices rise by more than is predicted. Depending on the region, house prices would need to rise significantly – by 6% a year in the north-west, by 34% in the south-west and by 28% in London – for it to be worth using Help to Buy now.
PricedOut’s spokesman, Dan Wilson Craw, said: “The millions of us renting want to be able to buy our own home eventually but, with house prices too high, all David Cameron and George Osborne have offered us is a Ponzi scheme to pull the wool over our eyes and help inflate the value of their London property portfolios even further. Continuing to rent and save appears to be the better option for most tenants.
“Instead of showering us with debt, the government need to make the actual houses cheaper and the only way they can do that is to build more of them.”
Article courtesy of The Guardian