Help to buy equity loan customers are facing a financial ‘double whammy’ which could make them £14,000-a-year worse off.
That’s according to research by RateSwitch which has calculated the potential costs to borrowers who took out a loan through the Government scheme providing first-time buyers with support to purchase a new build property five years ago.
Those joining the initiative when it launched back in April 2013 took out a loan of up to 20% towards a deposit. This loan was interest free for the first five years, after which time borrowers would pay fees on the equity portion.
For anyone who signed at the beginning, these costs are now due to kick in, a financial burden which RateSwitch warned could lead to thousands of homeowners struggling with mortgage repayments.
The fees, it calculated, could cost on average almost £900 per annum extra for homeowners and this would be likely to rise in future in line with the UK’s House Price Index.
What’s more, RateSwitch warned many homeowners would face the prospect of the low initial fixed and tracker rates they signed up to when they took out their Help-to-Buy mortgage also coming to an end.
This could see average payments rising to nearly £14,000 per year.
RateSwitch said many of the lenders supporting purchases for the scheme initially would not be accepting mortgages from other providers. This meant the most likely way for these homeowners to save money would be to switch to a better rate with their current lender.
Its research showed they could save more than £2,600 per year on average if they acted quickly.
Lee Flavin, founder and CEO of RateSwitch said: “Help-to-by equity loan homeowners face a financial time bomb with the prospect of rising Government fees and mortgage rates hitting some hard.
“Struggling families and homeowners could see their costs rise by thousands of pounds a year. Homeowners mortgaged under this scheme need to consider switching to improved rates as soon as possible to help combat soaring costs.”
There are options available to those borrowers for whom fees are about to kick in.
Switching to a better rate could soften the blow of the fee payments, said RateSwitch. Remortgaging to pay off the loan is another option which RateSwitch has calculated could cost an extra £265.52 per month.
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