Originally set to start on 1st January 2014, this scheme now starts, er, next week! This no doubt politically motivated move is remarkable as one of the key issues was whether or not lenders would be ready for January, let alone October. Undoubtedly, this will increase demand as more 95% Loan To Value mortgages become available and with housing stock still constrained no doubt prices will rise.
Whether this ultimately causes a “bubble” is one of extreme debate.
Whilst there are still a couple of important details that are unknown, like how much will the cost be to lenders and will they get much needed capital relief within the scheme, I know from personal experience that many people have questions so here is a brief guide.
Help To Buy 2
The aim is to encourage lenders to offer more 85%, 90% and 95% mortgages
- The government provides the lender with a guarantee, which the lender pays a fee for, of up to 15% of the loan amount. This is not a loan to the borrower but simply insurance between the lender and the government.
- The guarantee last for 7 years
- Scheme to run for 3 years but reviewed each year by the Bank of England who can change the terms if house prices are rising too fast.
- Available on purchase and remortgage for properties up to £600,000
- Applicants must only have one property
- Must be a repayment mortgage and in personal name
What does this mean?
It should mean more availability of 90% and 95% mortgages which should in turn lead to cheaper rates at that level. This means more borrowers will be able to buy with smaller deposits which should increase demand for property. Lenders will still have tight underwriting standards at this level and affordability will be strict.
The only lenders so far to say they will participate are the state-backed lenders Halifax, RBS and NatWest but others should follow suit in due course.
I will of course update you as we learn more…