More help for buyers
IF you've listened to the news of any sort last week, you will be aware that the second phase of the Government's Help to Buy Scheme has now been launched — three months earlier than originally intended.
The scheme — previously only available on new build properties — has now been extended to include pre-owned properties too. It is designed to help people desperate to own their own home, as it reduces the amount of deposit they need to come up with.
There are two elements to the Help to Buy Scheme
Mortgage Guarantee: Borrowers pay a deposit of 5 per cent of the purchase price of the property and get a 95 per cent mortgage from one of the participating lenders. There will be several participating lenders offering so say, 'competitive' mortgage deals under the Help to Buy Scheme, but at the moment, RBS and it's Natwest subsidiary and Halifax are leading the way offering two and five-year fixed rate deals between 4.99 per cent and 5.49 per cent interest rates.
Ultimately, because the Government is guaranteeing the loan — in practice by means of an insurance against the borrower defaulting — the cost of the mortgage is slightly higher, hence rates offered will be more than someone taking out a conventional mortgage with say, a 25-30 per cent deposit. Although there is no additional paperwork or charges to the borrower, in the end they will be paying for the benefit of this deal by a higher interest rate.
The other fear amongst pundits is that people who otherwise wouldn't be able to afford to buy their home (or move up the ladder), get into financial difficulty. But supporters of the scheme say that borrowers are subject to rigorous affordability checks to counteract any fears of irresponsible lending.
The scheme has been launched ahead of schedule (originally it would have been available from January 2014) and is open for three years until January 2017. The Government has set aside £12 billion by way of guarantees. In summary the Mortgage Guarantee Help to Buy Scheme is:
Available to both existing home owners and first-time buyers
Available on all previously owned and new build properties up to the value of £600,000
Available only on a single property (buy to let investors will not qualify)
Available for properties in the UK
Linked to participating mortgage lenders
Help to Buy: The Help to Buy Equity Loan, is slightly different. In this instance, the government loans you up to 20 per cent of the cost of a property, so you only need a 5 per cent deposit and a 75 per cent mortgage to make up the rest.
As before, the Equity Loan scheme is only available from approved, participating house builders and unlike the mortgage guarantee scheme, is only available on new build properties.
If you take advantage of this scheme, you can be assured, that your home will be in your name – meaning you can sell it at any time. However, when you do come to sell, you'll have to pay back the loan amount. If you don't sell, then you pay back the loan at the end of the mortgage period.
The amount to be paid back is 20 per cent of the sale price, which may be more than the original loan amount depending on whether your home has increased in value whilst you have owned it.
The other thing to be aware of is that whilst you won't be charged loan fees on the 20 per cent equity loan for the first 5 years, in the 6th year you will be charged a fee of 1.75 per cent of the loan's value. This amount will increase every year by the RPI plus 1 per cent.
In summary the Equity Loan Help to Buy Scheme is:
Available on new build properties only up to the value of £600,000
Equity loan scheme, using a government equity loan of 20 per cent, which will need to be repaid on sale of the property
Must be your only property
Buyers need a minimum of 5 per cent deposit
Available to both first-time buyers and existing home owners