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'Help to Buy' – Helps to sell.
We are all aware of the help to buy equity loan scheme aren’t we? – well if not, you should be – and I am talking to you developers out there.
In effect it allows qualified buyers to purchase a new home with a 5% deposit. The remaining 20% of the deposit is funded by the government through a loan. (if your unfortunate enough to be house hunting in London then this is 40%)
So simple maths – on a brand new home that is on the market for £200,000 the buyer will need to save a deposit of £10,000, the remaining £40,000 (£50,000 deposit in total) will be borrowed through the governments help to buy scheme.
Now, if you are a buyer reading this, it is really important that you understand the implications of how and when the loan is repaid, for example after 5 years you will be paying interest back on your equity loan, the interest rate will increase year on year. There are also implications for when you come to sell, for example if you took out a 20% equity loan, then you will be paying back 20% of the sale value of the house, i.e. the government has an equity stake in your house. – I’m a great advocate of the help to buy scheme, but do you research and be prepared for the increased monthly costs five years down the line.
Developers and house builders
It amazes me how many small house builders and developers do not register as a Help to buy provider. The process is pretty simple (though sometimes lengthy) and is certainly open to builders and developers of all sizes.
If you are in the business of building new homes, you should be registering for this. I know many developers who will sell off plan to overseas investors etc, and some will build to hold. However for the effort it takes, then you may as well register in order to provide an alternative sales route.
I have a few learnings to share in order to make the process a little smoother, should you choose to do so.
Apply early into the build
As mentioned the process can sometimes be lengthy, in my experience about six weeks, if you have potential buyers chomping at the bit, then it will become frustrating that you cannot proceed to the reservation stage.
Who is the contract with?
If possible, you only want to be signing one contract, this means that your solicitor will have to verify that you (and your business partners) have a vested interest in the site you are developing. The most likely issue here is that you have set your development up in an SPV, let’s say Company B, but your help to buy contract is with your main development company, let’s say Company A. It’s much easier to get around if you are aware of this at the beginning, the alternative is to have multiple contracts with multiple companies, and this is probably a waste of time, with the exception being below.
We had an example whereby we had two sites being developed simultaneously, but were using two different solicitors, on this occasion, the computer said No! – this delayed buyers placing reservations on their chosen plots, this was frustrating for them, and obviously for me, six weeks was a long time to tell people that they couldn’t reserve yet!!
If you are using different solicitors you have to have different contracts for each, this is due to you having to open a client account.
New Build Warranty
Something that frustrates me is the way that ‘NHBC’ has become a ‘proprietary eponym’ for new build warranty. This means, that it is a trademark that is used generically to describe a certain product, for example Vacuum cleaner and Hoover, Hot tub and Jacuzzi. I know you’re impressed with this definition, but in reality I had to google it – excuse the pun!
Anyhow if you’re using an alternative new build warranty provider such as CRL, as we do (we believe they are better, but that’s another article!) then you’re solicitor will have to ensure that certain points are covered by your provider. The HCA (Homes and Communities Agency) provide a list of alternative acceptable providers, but for some reason the use of NHBC is still prevalent.
Using an experienced agent and solicitor
If possible try and use an agent and a solicitor that has had experience selling with help to buy, unfortunately, many do not have this experience, and I find that I have to repeatedly describe the process. On the other hand I would rather use a good solicitor and Agent who have had no experience with help to buy, but are willing to put the effort in to learn, than someone who has the experience but are poor in other areas, like communication.
Hopefully the above pointers have cleared a few things up for you, and I do hope that you will consider registering as a help to buy provider if you’re building new homes. It is great way to contribute to tackling the housing shortage and can offer an alternative to other exits such as selling to investors.
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