Help to Buy bungle has left thousands of homeowners in arrears

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Lenders will not allow those in arrears to remortgage, meaning they could get stuck on an SVR


A Help to Buy government bungle has put homeowners potentially hundreds of pounds into debt, and could cost them even more when they come to remortgage.

The equity loan scheme gives home buyers a five-year interest free loan on a home purchase for five years, before charging interest at 1.75 per cent.

But a flawed system for notifying homeowners when their interest-free period has ended means thousands are now in arrears, possibly without even knowing it.

Esther McVey, minister of state for housing, confirmed that by November some 1,983 Help to Buy customers – or 5.8 per cent of the total due to be paying interest fees – were in arrears. 

Lenders will not allow those in arrears to remortgage, meaning they could get stuck on an SVR

She said: ‘The large majority of customers in arrears are only one or two payments behind and this debt very largely reflects short-term administrative issues with direct debit set-up at the start of the interest fee paying period.’ 

According to a Mortgage Solutions report, homeowners collectively owed some £189,000 by the end of November representing 2.7 per cent of the total amounts charged to customer accounts.

Last year This is Money warned that the government oversight could potentially be pushing hundreds of Help to Buy homeowners into arrears without them realising. 

A report from the National Audit Office revealed that systems to collect this interest were not put in place when some of the loans were originally set up.  

The audit found that in almost all cases homeowners affected had fallen into arrears because these processes weren’t put in place.

Number of customers in arrears by region 
Region Households in arrears 
North West
South East
Yorkshire and the Humber
West Midlands
East Midlands
East of England
South West
North East
London
352
270
241
230
221
210
182
174
103

On top of this, some of the affected households had not responded to contact from the company administrating the loans, Target.

Homes England, who run the Help to Buy scheme, attributes this mainly to out-of-date or incomplete contact details held by Target for these buyers – meaning that many of these homeowners might not even know they are falling further into debt. 

The far-reaching report also found that once the interest started rolling in, those responsible for dealing with customer enquiries were woefully unprepared for the task.

The report suggests that Target, the organisation administering the loans on behalf of Homes England, was overwhelmed by the volume of queries from homeowners once they started redeeming their loans and paying interest.  

At one point, approximately 25 staff were dealing with some 20,000 customer enquiries per month. 

As a result the company had to triple the number of staff dedicated to administering the scheme to keep up with demand. 

A spokesperson for Target today said: ‘We are working closely with Homes England to actively manage customer accounts and ensure the best possible treatment for everyone.’

The North West is the worst affected area followed by the South East and Yorkshire

 The North West is the worst affected area followed by the South East and Yorkshire

How much could this cost homeowners?

As an example of how much this will be costing those affected, imagine a couple bought a property worth £200,000 in 2015 with a £10,000 deposit and a £40,000 equity loan. 

They took out an average five-year fix at 5.49 per cent. Monthly repayments were £920. 

Since then the value of the property has risen by £50,000 to £250,000.

They’ve repaid £55,214 in capital and interest since 2015. Most of this has been in interest, leaving them with a balance of £133,887 to remortgage.

With the equity loan remaining in place, this would give the couple access to some of the lowest rates on the market, in the 60 per cent loan-to-value bracket.

Some of the best deals in this range float around 1.15 per cent, and monthly repayments would drop to around £625. 

But for those customers who have unknowingly slipped into arrears on their equity loan, they would be in for a nasty surprise when the time came to remortgage.

Being in arrears would disqualify them from being able to remortgage, and instead they would slip onto their lender’s standard variable rate.   

The average standard variable rate currently hovers around 4.90 per cent – this would result in monthly repayments of around £876 – £251 more a month than if they had remortgaged.

On top of this, the interest owed on their equity loan has been piling up all along.

However, there is also a strong possibility that many who bought with Help to Buy will not have seen their property’s value rise, as any house price inflation since then is eroded by the removal of the premium usually paid for brand new homes.

This could see their financial situation look even worse than the example above.

Help to Buy left us hundreds of pounds in arrears

Kieron and Hannah Muldoon were among the first adopters of Help to Buy when they bought their first home in Merseyside seven years ago.  

For five years, the couple were over the moon with their decision to take advantage of the Government’s interest-free loan to help them get on the property ladder. 

Help to Buy Homeowner Kieron Muldoon and his wife Hannah say their experience with Help to Buy has been 'diabolical'

Help to Buy Homeowner Kieron Muldoon and his wife Hannah say their experience with Help to Buy has been ‘diabolical’

But in year six they got a nasty shock when they received a letter from the Help to Buy administrator telling them they had failed to pay the interest they owed on their equity loan for five months. 

It emerged that a bungle made by the administrator itself left Kieron and Hannah with a total of around £235 in accumulated interest, which they were expected to pay off in one go.  

Hannah explained: ‘They said when we signed up that after the five years the interest on the Help to Buy loan would start coming out of our account. So I gave my bank details to the local help to buy agent.

‘We went into arrears without knowing it – they sent us a letter to tell us, but we had had nothing from them up to that point.

‘Their complaints process was diabolical. We had to pay all the interest off at once. This is before we could even set up a monthly repayment. Obviously I was livid. It wasn’t our fault, it was theirs.’

Luckily, this didn’t seem to affect the couple’s credit rating, says Hannah, adding: ‘They were so incompetent they didn’t share it with the credit agencies.’ 

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