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Thousands of Help to Buy homeowners warned of financial time bomb

Thousands of homeowners across Wales are expected to struggle with mortgage repayments from January 2019, as the five-year interest-free ‘grace’ period of the Government’s Help to Buy: Equity Loan comes to an end.

Help to Buy mortgages were introduced in 2014 in Wales and the £170m shared equity scheme provided much needed support to those who would have struggled to become homeowners without them. Since its launch, this version of the scheme has assisted nearly 6,500 homebuyers across Wales.

However, Government fees on the equity loan portion begin to kick in early next year, costing homeowners an average of almost £650 per annum extra, and these are likely to rise in future years in line with the UK’s House Price Index.

In addition, many homeowners are facing the prospect of the low initial fixed and tracker rates they signed up to when they took out their Help to Buy mortgages coming to an end, with average payments rising to nearly £9,000 per year.

In a perfect storm for struggling homeowners, 9 of the 17 lenders who support Help to Buy: Equity Loan purchases are refusing to accept these mortgages from other providers – including major institutions such as Lloyds Bank, Nationwide, Principality and Virgin Money. 

This means one of the most likely ways for these homeowners to save money is to switch to a better rate with their current lender. RateSwitch’s research shows that Help to Buy homeowners can save more than £2,600 per annum on an average if they plan ahead and act promptly.

Lee Flavin, founder and CEO of RateSwitch said: 

“Help to Buy: Equity Loan homeowners in Wales face a financial time bomb from January, with the prospect of rising Government fees and mortgages rates hitting home hard. We are already seeing struggling families and homeowners see their costs rise by thousands of pounds a year as the first trance of Help to Buy equity loans have come to and end in England. Homeowners mortgaged under this scheme need to consider switching to improved rates as they come to the end of their terms to help combat soaring costs in the future. Rateswitch is committed to doing everything it can to help homeowners defuse the Help to Buy mortgage time bomb.

“It’s absurd that thousands of Help to Buy homeowners could soon become mortgage prisoners due to so many lenders refusing to accept this type of mortgage from other providers. For so many homeowners, the way to escape higher mortgage rates will be to switch as soon as possible through services like Rateswitch, to access the very best rates their current lender can offer and not be sentenced to paying higher standard variable rates through no fault of their own.”