Flat broke: my Help to Buy disaster

‘Do you want a cup of tea?’ The surveyor shook his head. It would take me longer to boil the kettle than for him to do a valuation of my 400 sq ft, one-bedroom flat. I paced awkwardly around. A minute later, he gave me the thumbs-up. Valuation complete, he left. I boiled the kettle anyway.

Four years after the purchase of the flat, via the ‘Help to Buy: Equity Loan’ scheme, I couldn’t be more desperate to sell. Would I make a profit? I just want to escape its clutches and avoid a loss. Why sell? Let’s start at the beginning. Why buy?

Perhaps it was an early midlife crisis. At nearly 30 years old, I thought it time to leave the familial roost. It was unfair on my parents to have me, the resident ghost daughter, living at home for ever. I was single and had spent years flip-flopping between living at home and renting with friends. Now, my friends were either married, living abroad or on such high salaries that I could no longer afford to rent with them.

The timing was right but only one conundrum remained. Money. As a teacher, I hardly earned big bucks. My bank’s mortgage limit at the time was my annual salary multiplied by 4.5. My maximum mortgage allowance was £170,000. In London, this opened few doors. A property search engine delivered fruitless findings: long boats, parking spaces or retirement homes. Shared ownership was out of the question because my salary was too low.

Then Help to Buy came along. Looking back, I wish I’d never heard those three words. Like many bad ideas, it sounded good at the time. It provided a tailor-made, first-time buyers’ solution, designed for poor millennials like me. The guidance on Gov.uk was inspiring: ‘Help to Buy equity loans provide a low-interest loan towards your deposit. Customers need a 5 per cent deposit, and the government lends up to 20 per cent of the value of the home (up to 40 per cent of the value if you are purchasing in London).’

What did this mean for me? No longer restricted to a budget of £170,000, I could buy a new-build property valued up to £350,000. On the spreadsheet, the numbers made sense. A 40 per cent government loan (£140,000), the mortgage (£170,000) and my life’s savings (£40,000) totalled £350,000. And the best thing of all? I could buy the property by myself, with no family donations required. For once I felt like a grown-up.

In August 2018, I moved to my new home turf: a one-bed flat in Zone 5, north London. I squirmed at parting with my hard-earned cash. ‘Are you sure?’ my parents asked, more than once. ‘It’s a big decision.’ Of course I was sure. Property was an investment.

After stamp duty, solicitor fees and furniture costs, I was down to my last penny. A few weeks later, I realised I’d never stopped to think about the location, or if I’d be happy to call this place home. ‘It’ll be a dream to clean,’ said a friend, smiling encouragingly. ‘It’s so tiny.’ The flat, although shiny, with top-of-the-range specifications, was soulless. It didn’t feel like a home.

This year, reality hit. I have recently changed career to be a civil servant. My salary has taken a nosedive. I’m approaching middle age, with decreased earnings, and learning the hard way about rising interest rates. I have to sell my flat. Financially and emotionally, it is the only way out.

Four years ago, five years seemed a long time. Not any more. Next August, the term on my fixed-rate mortgage ends. Furthermore, monthly interest payments on the 40 per cent equity loan will kick in – it is interest-free only for the first five years. I admit I turned a blind eye to this guidance on Gov.uk when I bought my flat: ‘In the sixth year, you’ll be charged interest at a rate of 1.75 per cent. This will be applied to the equity loan amount you originally borrowed.’

And there’s more good news: ‘The interest rate increases every year in April, by adding the Consumer Price Index plus 2 per cent.’ In other words, from year six onwards, I am doomed. The numbers in my spreadsheet have turned red. My monthly outgoings could rocket to unknown heights. It is a gamble I can’t win.

I’m not alone. In the year that I bought, some 46,000 people took out mortgages under the Help to Buy loan scheme. They’ll be hit by increased interest rates next year. Another 52,000 people will reach the end of their interest-free and fixed terms in 2024. Who knows what inflation will be by then?

What now? The property has been on the market for nine weeks with no offers yet. My estate agents remain hopeful. In my view, however, my little flat is lost in an overcrowded market of new developments. It’s a clone of thousands of other flats just like it. What’s more, the flat has depreciated. I bought at £340,000, and will be lucky to sell for £300,000. Help to Buy does at least have one saving grace, which is protection against negative equity. The payback of the equity loan is valued at 40 per cent of the final selling price. So if, for example, I sell at £300,000, then I only pay back £120,000, rather than the original equity loan value.

The repayment of the Equity Loan (£120,000), my mortgage (of which £160,000 remains) and the early mortgage repayment fee (£4,000) will cost me £284,000. If I sell the flat at £300,000, after this deduction, I am £16,000 in the black. So far, so good – or is it? Four years prior, I contributed my life’s savings (£40,000). That £40,000 has turned into £16,000. I have made a net loss.

On Gov.uk, the scheme is painted as a success story: ‘The Help to Buy equity loan scheme has helped more than a quarter of a million people to buy a home.’ The scheme closes to new applications in October. In my view not a moment too soon.

‘You’ve learnt a lot from the experience,’ sympathise my parents. But it has been an expensive lesson that I could ill afford to learn. Pride comes before a fall – which in my case, will be a spectacular fall off the property ladder.