Kieron and Hannah Muldoon were among the first adopters of Help to Buy when they bought their first home in Merseyside six 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.
But in year six the couple 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.
Now it’s 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.
Homeowners say they are facing a fresh batch of problems when it comes to paying interest
The couple’s experience is just the latest in a series to come to light after This is Money revealed that early adopters of the Help to Buy scheme were unwittingly being pushed into arrears.
A report released in June by the National Audit Office revealed systems to collect the interest on Help to Buy equity loans after the initial five-year interest-free period were not put in place for all homeowners when some of the loans were originally set up.
This led to approximately 739 households falling into arrears potentially without knowing it once their interest-free period came to an end.
Now, some of those same homeowners say they are experiencing a fresh raft of problems.
One of the features of the equity loan is its five-year interest-free period before charging at a rate of 1.75 per cent.
Usually this comes straight out of the homeowner’s bank account via direct debit – but this was not the case for Kieron and Hannah.
Hannah explains: ‘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.
Help to Buy Homeowner Kieron Muldoon (pictured) and his wife Hannah say their experience with Help to Buy has been ‘diabolical’
‘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 affect the couple’s credit rating, says Hannah, adding: ‘They were so incompetent they didn’t share it with the credit agencies.’
The couple’s home ownership nightmare didn’t stop there: when it came time to move, new problems began to pop up. The couple were also caught up in the leasehold scandal and as they didn’t own the freehold to their home, they had to pay an annual ground rent that was set to double every 10 years.
As a result of these onerous terms, they were forced to agree to sell their home at a £16,000 loss – leaving them with no choice but to use the Help to Buy scheme when it came time to buy their next home.
By this point, Government had appointed mortgage and loan servicing company Target to administer the Help to Buy loans.
Hannah told us she and her husband agreed with Target to set up a £1 a month direct debit from year one, meaning that they wouldn’t accidentally fall into the arrears trap for a second time.
‘We’ve been in the house six months now and the £1 still isn’t coming out,’ she says.
This time, it is the East Midlands Help to Buy branch responsible for Hannah and Kieron’s loan.
After realising the money wasn’t coming out of their account, the couple rang their local agent to find out what was going on.
According to Hannah, the agent told her their details had been passed on to Target for the direct debit to be set up.
Hannah says: ‘I contacted Target and they said they’d phone me back urgently.
‘They called me back two weeks later and said they had no record of me on their system. The stress and distress is unbelievable.
‘My sister in London is in the same situation and she’s been in her house for over a year. This is systemic and I would like it exposing.
‘They are a diabolical organisation. The cynic in me says they do it on purpose – the non-cynic says that they’re totally incompetent.’
When a borrower takes a Help to Buy equity loan, their local Help to Buy agent then passes on their details to Target to administer the loan.
This is Money asked Homes England how long it should take for details to move over from Help to Buy agents to Target. It also asked how many homeowners are still in arrears.
Homes England declined to answer both questions. However, a source close to the organisation said the delay is linked to the time taken to document a new homeowner with the Land Registry.
This is Money then approached Target directly. The administrator was asked how many direct debits had been set up, and what the average wait time was.
Target did not respond to these questions. Instead a spokesman said: ‘We are aware that Homes England has provided a response and we would refer you to that. At this stage we don’t have anything further to add.’
Hundreds of Help to Buy homeowners were put in arrears, potentially without even realising it
Hannah and Kieron are still waiting for their direct debit to be set up.
Kieron says: ‘Having found ourselves in a very stressful situation when Target already failed to set up the repayment direct debit once despite having our details and putting us straight into arrears, I find it shocking that they have failed for the second time to set up a direct debit.
‘On contacting them they assured me they would get round to it, but they were not sure when it would be. It makes us despair that we have already been through this with Target once before, when we had our first house.’
How many people are affected?
Last month the National Audit Office released a report into Help to Buy which revealed that a flaw in the system for collecting repayments pushed some early home buyers, such as Hannah and Kieron, into arrears without them knowing it.
Overall this failure led to 5 per cent of interest-paying Help to Buy homeowners – approximately 739 households – falling into arrears.
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 suggested 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, the report found.
As a result the company had to triple the number of staff dedicated to administering the scheme to keep up with demand.
The report also suggests that the group’s process for recovering outstanding debts wasn’t up to scratch. Target did not use enforcement agents or share information with credit reference agencies, the auditor found.
The group has since responded to this stating that it does use enforcement agents but was unable to in this case due to contractual and policy limitations.
On top of this, Homes England itself had raised concerns over the accuracy and completeness of data held by Target.