Help to Buy is a government scheme which could make getting onto or moving up the housing ladder more accessible. It helps existing home owners and first time buyers purchase a home with as little as a 5% deposit.
This means that many more people will be able to move with as little as a 5% deposit. Many more people will be looking to step onto the property ladder despite claims that the scheme could produce another “housing bubble” where further rises could occur in a housing market where prices are already quickly increasing.
The first phase of the Help to Buy Scheme in England started in April, when buyers of newly built homes were eligible for a 20% equity loan from the government on top of their 5% deposit.
Under the second phase, buyers will only need to provide a small deposit, with the government offering a guarantee of 15% of the loan to the lender – for a one-off fee, expected to be up to 0.9 – to encourage the bank or building society to offer the loan.
Banks including Royal Bank of Scotland, NatWest and Halifax will start taking applications this week.
Here, Two Men and A Truck try to tackle some of the commonly occurring questions and misconceptions from the Help to Buy scheme.
Q. Is the Scheme for new-build homes only?
No. The new Mortgage guarantee scheme is for both new build and existing property up to £600,000. However, the Equity Loan scheme is for new-build properties only, which has been running since April 2013.
Q. Is it just for first-time buyers?
As long as it is a residential repayment mortgage and not a buy-to-let, the Mortgage Guarantee scheme is for any buyer.
Q. Is the scheme for the whole of the UK?
The Mortgage Guarantee phase of Help to Buy is available across the UK. The equity loan phase of Help to Buy is available in England and is for new-build properties only up to £600,000. Scotland has launched an Equity Loan Scheme called Help to Buy (Scotland) for new-build properties up to £400,000. Wales has yet to formally announce an Equity Loan scheme but is expected to do so soon.
Q. Are we creating an artificial market or a price bubble? Will I be in negative equity in 5 years’ time if I take up the scheme?
It’s important to remember the property market is exactly that – a market. Property prices can go up or down depending on a number of factors including the balance between supply and demand. It is worth remembering that in some parts of the country, property prices are lower today compared to five years ago, part influenced by the difficulty of buyers obtaining mortgages. As existing home owners move they will have to sell helping to increase property supply. Help to Buy is scheduled to last for three years, the aim being the mortgage market will be better when it finishes.
Q. How will this affect me if I don’t need or want a government-backed mortgage?
It is likely that many of the mortgage products for those with a deposit of 10% or more will not be assisted by the governments’ Help to Buy Scheme. However, the improved lending environment should mean more competitive rates for those with 10% to 20% deposit benefiting all buyers, whether in the scheme or not.
Q. Will I be dependent on the sate if I take out a Help to Buy mortgage? Can they change the rules?
A Help to Buy Mortgage Guarantee is essentially the same as a traditional 95% repayment mortgage with the usual terms and conditions between you and the lender. However, as part of the Mortgage Guarantee agreement between the government and the lender, the lender is not able to offer a Help to Buy assisted mortgage, other than being a 95% loan to value.
Q. Is this phase to Help to Buy (Mortgage Guarantee) just an extension of the Equity Loan scheme to existing properties?
No. Phase two is a mortgage guarantee scheme. It involves a traditional repayment with a loan to value of up to 95% and is available on both new build and existing property. There is no equity loan. A buyer with a 5% deposit should ask a mortgage advisor to explore the possibility of a Help to Buy backed mortgage for the remaining 95%.