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First-time buyers relying on a flagship Government scheme to help them achieve their housing dreams could be wasting thousands of pounds by buying at the wrong time.
Users of the Help to Buy equity loan scheme, which is designed to help struggling first-time buyers onto the ladder, could be paying as much as £4,800 more than necessary for their property.
The scheme offers buyers a five-year interest-free loan, worth up to 40pc of a property’s value. After this period is up, homeowners are charged 1.75pc in interest, rising each year by one percentage point plus RPI.
But interest charges start to accrue the April after the interest-free period expires, meaning those buying at the end of the calendar year will be charged interest much more quickly. This pitfall, which was uncovered by the consumer website Moneysavingexpert.com, can have cost major implications for a homeowner.
In the most acute example, a homeowner taking out the maximum equity loan of £240,000 would pay £4,760 more in charges if they took out their loan on December 31 compared to a day later on January 1.
The December buyer would pay interest charges of £129,403 over the 25-year lifespan of the loan compared to £124,643 for a purchase made at the start of January.
This means the best time to buy using Help to Buy is at the start of the calendar year, as these borrowers will get lower rates for as long as 15 months.
Michael Ross, 37, bought a property in Billingshurst, West Sussex, in December 2013. He took out a £56,000 Help to Buy loan to help fund his house. Because of his date of purchase, he was liable to pay interest from April 2019. Yet if he had delayed his purchase by a matter of weeks that date would have been April 2020 instead.
This misfortune has cost Mr Ross more than £1,000 extra in interest charges. He said: “The extra expense to tens of thousands of people like me is unjust.”
Guy Anker, of MoneySavingExpert, said: “This calendar lottery is unfair on some homeowners who may face thousands in extra costs over their mortgage term, while the way interest is charged has also been poorly explained in some of the official literature, meaning many could be unaware their rate will rise earlier than expected.”
Mr Anker encouraged prospective buyers who would expect to complete in December to ask their developer to move this date to the start of January.
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