In the sixth year, interest is charged on the capital loan of 1.75 pc.
This rate then increases by the Retail Price Index plus one percentage point (or the Consumer Price Index plus two points in the current scheme). Based on the current RPI of 12.6%, this means the rate will increase to 1.99% this year. So the home equity loan rate is much lower than a mortgage rate, but the jumps in monthly bills will happen all at once.
The Hamptons calculations incorporate 11% home price growth over the past five years, meaning the homeowner will be able to downsize their mortgage from 55% to 42%.
But here Help to Buy owners are likely to be caught up in the housing market downturn. There are widespread expectations of falls in house prices, with a variety of analysts forecasting drops from 10pc to 15pc.
Houses on the bottom rung of the ladder, particularly in London, are expected to be the hardest hit. Andrew Wishart of Capital Economics, a research consultancy, warned that homeowners who bought using Help to Buy could be forced to take big price cuts if they wanted to sell.
A wave of Help to Buy owners could get caught up in the market. The properties they live in are mostly entry-level flats – houses typically bought by other first-time buyers or investors buying to let.
These are the two groups of buyers that are being hit the hardest by the cost of living crisis and sky-high mortgage rates. In the last two weeks, demand from first-time buyers is down 30% compared to the first two weeks of 2021according to the real estate website Rightmove.
Owners are unlikely to step in to fill the gap. Lenders calculate the affordability of buy-to-let loans by measuring rental income as a ratio of mortgage interest payments: as rates rise, many buy-to-let properties become non-mortgageable. Help to Buy owners will also have lost their new build bonus.
Mr Wishart said: “Combined with the possibility that the Help to Buy scheme inflated the value of the property when it was new build, it is likely to be difficult for those who used the equity loan scheme to sell their homes without granting a significant amount.” price reductions”.
Paul Cheshire, professor emeritus at the London School of Economics and a former government adviser, warned that the Help to Buy scheme itself also brought an additional premium.
He said: “There will be big regional variations. Most of these properties are in London and the South East where, due to limited supply, Help to Buy’s idiocy drove prices up more than their ‘savings’ value.”
First-time buyers have been hit the hardest by the turmoil in the mortgage market. Lenders have relaunched mortgage products since the mini-budget recall on September 23, but 5% deposit offers, a lifeline for first-time buyers, are still rare.
The number of available residential mortgage offers has now risen to 3,066, down 23% from before the mini-budget. But there were only 143 95% mortgages, a drop of 49% compared to September 23.
Skyrocketing mortgage rates have also slashed the amount buyers can borrow as a multiple of their income.
This means that even first-time buyers who can save a 5% or 10% deposit are likely to be locked out as their maximum loan amounts are lowered.
A government spokesman said: “Lenders should treat customers who are struggling with mortgage costs fairly and homeowners should contact their lender to discuss the options available to them. We stay in constant contact with lenders.”