Q. Who is it for?
A. The Help to Buy mortgage guarantee scheme helps home buyers with good credit records who can afford to purchase the property outright with a deposit as low as 5%.
These include First Time Buyers, trying to get onto the property ladder, and ‘second-movers’, needing to move up the ladder to a bigger home. These loans are not available for buy-to-let landlords or second home owners or for a shared ownership purchase.
Q. Who is eligible – and for what types of property?
- Existing home owners and first time buyers
- Buyers with a minimum deposit of 5% of the purchase price
- Buyers who are borrowing from a participating lender
- Available across the UK on newly built or ‘second hand’ up to £600,000
- Residential property, where you plan to live in it and not rent it out
- Your only property, so you cannot have an interest in any other property, anywhere in the world
Q. How does it work?
A. The scheme works by offering lenders the option to purchase a guarantee from the government on mortgages where a borrower has a deposit of between 5% and 20%.
The guarantee offers lenders an ‘indemnity’ or insurance cover, which will compensate them for most of any loss they may suffer if the borrower defaults, the property is repossessed and there is insufficient equity in the property to fully repay the lender.
ExampleThis will therefore encourage many lenders to increase the availability of high loan to value products, including ‘95%’ mortgages. The mortgages advanced by lenders using the Help to Buy scheme will be subject to the lenders’ usual underwriting criteria.
If the home in the graphic above sold for £250,000, making a £50,000 ‘profit’, you’d get the entire £250,000, without having to pay back any government loan or share any profit. As you own the property fully, you receive the full benefit of any property appreciation with just your mortgage to repay as with any normal mortgage.
Q. What are the interest rates on the mortgage loan?
A. Unlike the Equity Loan scheme, the lenders will be advancing up to 95% of the value of the property, and so they will price their products on that basis. Each lender that participates in this scheme will have their own individual attitude to risk and will price their products accordingly, and so consult your mortgage adviser for an independent view on all the low deposit products that are becoming available.
Q. For how long is it available?
A. The scheme has attracted a lot of attention since the government announced that it would be available from October 2013, rather than 1st January 2014, the initial launch date. You can apply to a number of lenders already and more are expected to join the scheme in the coming months.
Despite the early launch, the scheme is set to run until January 2017 as originally planned, however the Bank of England will be monitoring the impact of the scheme closely, and could potentially make changes to the qualifying criteria or withdraw it entirely if they feel it necessary to do so.