Flat broke: my Help to Buy disaster

‘Do you want a cup of tea?’ The surveyor shook his head. It would take me longer to boil the kettle than it would for him to appraise my 400-square-foot one-bedroom apartment. I awkwardly walked around. A minute later, he gave me the thumbs up. Full assessment, gone. Anyway, I boiled the kettle.

Four years after buying the flat, through the ‘Help to Buy: Equity Loan’ scheme, he couldn’t be more desperate to sell. Would you make a profit? I just want to escape his clutches and avoid a loss. Why sell? Let’s start from the beginning. Why buy?

Maybe it was an early midlife crisis. At almost 30 years old, I thought it was time to leave the family chicken coop. It was unfair to my parents to have me, the resident ghost daughter, living at home forever. He was single and had spent years switching between living at home and renting with friends. Now, my friends were married, living abroad, or had salaries so high that I could no longer pay the rent with them.

The time was right, but only one puzzle remained. Money. As a teacher, he barely earned much money. My bank’s mortgage limit at the time was my annual salary multiplied by 4.5. My maximum mortgage grant was £170,000. In London, this opened few doors. A property search engine turned up fruitless finds: long boats, parking spaces, or nursing homes. Shared ownership was out of the question because my salary was too low.

Then the help to buy appeared. Looking back, she wishes she had never heard those three words. Like many bad ideas, it sounded good at the time. She provided a custom solution for first time buyers, designed for poor millennials like me. The guidance on Gov.uk was inspiring: ‘Share Aid Loans provide a low interest loan for your deposit. Clients need a 5 per cent deposit, and the government lends up to 20 per cent of the value of the house (up to 40 per cent of the value if you are buying in London).

What did this mean to me? No longer restricted to a £170,000 budget, I could purchase a new build property valued at up to £350,000. On the spreadsheet, the numbers made sense. A 40 per cent government loan (£140,000), the mortgage (£170,000) and my life savings (£40,000) totaled £350,000. And the best of all? I could buy the property on my own, without the need for family donations. For once I felt like an adult.

In August 2018, I moved into my new home: a one-bedroom flat in Zone 5, North London. I squirmed as I parted with my hard-earned money. ‘Are you sure?’ my parents asked, more than once. It’s a big decision. Of course he was sure. The property was an investment.

After the stamp duty, the lawyers’ fees, and the furniture expenses, I was left with every penny. A few weeks later, I realized that I had never stopped to think about the location, or if I would be happy to call this place home. ‘It will be a dream to clean,’ said a friend, smiling encouragingly. It’s so little. The floor, while gleaming with top-of-the-line specs, was heartless. It didn’t feel like home.

This year, reality check. I recently changed careers to be a civil servant. My salary has plummeted. I’m approaching middle age, on a low income, and learning the hard way about rising interest rates. I have to sell my flat. Financially and emotionally, it’s the only way out.

Four years ago, five years seemed like a long time. Not anymore. Next August the term of my fixed-rate mortgage expires. Also, monthly interest payments on the 40 percent home equity loan will go into effect (it’s interest-free) for the first five years only. I admit I turned a blind eye to this guide on Gov.uk when I bought my flat: ‘In the sixth year, you will be charged interest at the rate of 1.75 per cent. This will be applied to the amount of the home equity loan you originally borrowed.’

And there is more good news: “The interest rate increases every year in April, adding the consumer price index plus 2 percent.” In other words, from year six onwards, I’m doomed. The numbers in my spreadsheet have turned red. My monthly expenses could skyrocket to unknown heights. It’s a bet I can’t win.

I am not alone. In the year I bought, some 46,000 people took out mortgages under the Help to Buy loan scheme. They will be affected by rising interest rates next year. Another 52,000 people will reach the end of their fixed and interest-free terms in 2024. Who knows what inflation will be by then?

Now what? The property has been on the market for nine weeks with no offers yet. My real estate agents remain hopeful. In my opinion, however, my little flat is lost in a market overcrowded with new developments. It is a clone of thousands of other floors like this one. In addition, the flat has depreciated. I bought it for £340,000 and I’ll be lucky to sell it for £300,000. Help to Buy has at least one saving grace, which is negative equity protection. The capital loan repayment is valued at 40 percent of the final sale price. So if, for example, I sell for £300,000, I only pay £120,000, rather than the original value of the equity loan.

The Equity Loan payment (£120,000), my mortgage (of which £160,000 remains) and the mortgage prepayment fee (£4,000) will cost me £284,000. If I sell the flat for £300,000, after this deduction, I make £16,000. So far so good, right? Four years earlier, I contributed my life savings (£40,000). That £40,000 has become £16,000. I have had a net loss.

On Gov.uk, the scheme is presented as a success story: ‘The Help to Buy equity loan scheme has helped over a quarter of a million people buy a home’. The scheme closes to new applications in October. In my opinion, it is not a moment too soon.

‘You have learned a lot from the experience’, sympathize my parents. But it has been an expensive lesson that I could not afford to learn. Pride comes before a fall, which in my case will be a spectacular fall from the property ladder.

What goes up, must go back up.

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