How does the Help to Buy scheme work?

16 August 2013

 

Help to Buy was introduced by the government in April 2013 with the main purpose of assisting property buyers and people looking to climb up the property ladder. There are two parts to the scheme; the first is an equity loan available on new-build homes valued at up to £600,000 and the second is a mortgage guarantee that is yet to be introduced to the market. However, many remain confused about how Help to Buy actually works and who is eligible, which is why we are going to take the time to clear this up today.
Help to Buy equity loan
This is the first part of the scheme and is accessible for first-time buyers and current homeowners looking to buy a new-build property. You need to have a deposit for 5% of the property’s value, but can then borrow an additional 20% on an interest-free basis. This loan would be provided by the government and needs to be paid back when the property is sold. In the sixth year of owning the property you will be charged a fee for 1.75% of the loan’s value that then increases year on year.
Help to Buy mortgage guarantees
The second portion of the scheme will become accessible in January 2014 and sets out to assist people in purchasing new or existing property. A deposit of 5% is required and the government will give the mortgage lender a guarantee for up to 15% of the loan. However, the mortgage guarantee is not available if you plan to purchase and rent out property. To be eligible, the property has to be on sale at the price of £600,000 or less and it cannot be a shared equity or shared ownership purchase.
Will the scheme help me?
The main thing you should take from the above is that Help to Buy predominantly sets out to help first-time buyers and will not be available to people who plan to buy and let property. It should also be noted that people who are currently in negative equity will not be eligible. Whereas other schemes have tended to place emphasis on new-build properties, the mortgage guarantee will help people looking to sell because it helps buyers to purchase existing property. However, the scheme does not automatically mean that you will be able to get a mortgage, as lenders will still take into account such issues as poor credit history.
Rates on Help to Buy mortgages
The rate you have to pay on your mortgage remains unclear as there are currently no guidelines on lender rates. Therefore, it could be that the deposit you place through the scheme incurs a high interest rate. If you miss a mortgage payment there is no additional support available through the scheme and you can lose your property. The guarantee is for the lender and means that any money lost due to repossession will be made up by the government.
Things to consider
The intention of the Help to Buy scheme is to boost the property market and the economy by helping people who can’t afford large deposits. However, there remains concern that this will only lead to short-term results. Specifically, there has been highlighted the potential for the scheme to lead to house price increases; this has been directed at the mortgage guarantee part of the scheme. Such inflation would work against the original intentions of the scheme and potentially lead to a housing bubble, as experienced in the market in the last decade. At the moment, we need to wait and see if prices will be higher than supply and if it will be easier or harder for first-time buyers to get on the property market.
Of course, please remember your home may be repossessed if you do not keep up repayments on your mortgage and there will often be a fee for mortgage advice you receive from any specialist advisor.
Article provided by www.anscombes.co.uk 

 

Help to Buy was introduced by the government in April 2013 with the main purpose of assisting property buyers and people looking to climb up the property ladder. There are two parts to the scheme; the first is an equity loan available on new-build homes valued at up to £600,000 and the second is a mortgage guarantee that is yet to be introduced to the market. However, many remain confused about how Help to Buy actually works and who is eligible, which is why we are going to take the time to clear this up today.

Help to Buy equity loan

This is the first part of the scheme and is accessible for first-time buyers and current homeowners looking to buy a new-build property. You need to have a deposit for 5% of the property’s value, but can then borrow an additional 20% on an interest-free basis. This loan would be provided by the government and needs to be paid back when the property is sold. In the sixth year of owning the property you will be charged a fee for 1.75% of the loan’s value that then increases year on year.

Help to Buy mortgage guarantees

The second portion of the scheme will become accessible in January 2014 and sets out to assist people in purchasing new or existing property. A deposit of 5% is required and the government will give the mortgage lender a guarantee for up to 15% of the loan. However, the mortgage guarantee is not available if you plan to purchase and rent out property. To be eligible, the property has to be on sale at the price of £600,000 or less and it cannot be a shared equity or shared ownership purchase.

Will the scheme help me?

The main thing you should take from the above is that Help to Buy predominantly sets out to help first-time buyers and will not be available to people who plan to buy and let property. It should also be noted that people who are currently in negative equity will not be eligible. Whereas other schemes have tended to place emphasis on new-build properties, the mortgage guarantee will help people looking to sell because it helps buyers to purchase existing property. However, the scheme does not automatically mean that you will be able to get a mortgage, as lenders will still take into account such issues as poor credit history.

Rates on Help to Buy mortgages

The rate you have to pay on your mortgage remains unclear as there are currently no guidelines on lender rates. Therefore, it could be that the deposit you place through the scheme incurs a high interest rate. If you miss a mortgage payment there is no additional support available through the scheme and you can lose your property. The guarantee is for the lender and means that any money lost due to repossession will be made up by the government.

Things to consider

The intention of the Help to Buy scheme is to boost the property market and the economy by helping people who can’t afford large deposits. However, there remains concern that this will only lead to short-term results. Specifically, there has been highlighted the potential for the scheme to lead to house price increases; this has been directed at the mortgage guarantee part of the scheme. Such inflation would work against the original intentions of the scheme and potentially lead to a housing bubble, as experienced in the market in the last decade. At the moment, we need to wait and see if prices will be higher than supply and if it will be easier or harder for first-time buyers to get on the property market.

Of course, please remember your home may be repossessed if you do not keep up repayments on your mortgage and there will often be a fee for mortgage advice you receive from any specialist advisor.

Article provided by http://www.anscombes.co.uk/ 

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