I am sure you are aware of the depressed housing market that has affected much of the United Kingdom during the last five years. Some of you may also be aware of initiatives that were launched by the Government this year to encourage some confidence in the property market. This initiative is called Help to Buy.
There are two distinctly different Help to Buy schemes:-
The Help to Buy Equity Loans Scheme (England only), which will close on 31 March 2016, or earlier if the funding is completely allocated
The Help to Buy Mortgage Guarantee Scheme (UK wide)
The Help to Buy Equity Loans Scheme (ELS) is available for the purchase of new build properties only, up to a purchase price of £600,000.
The Help to Buy Mortgage Guarantee Scheme (MGS) is available for the purchase of both new and existing properties, also up to a purchase price of £600,000.
Both the ELS and MGS require that the property you are buying is for residential use and that the buyer must live in it. It cannot be for the buyer to rent out. Both schemes also require that the buyer of the property has no interest in any other properties.
The ELS is only available through Local HomeBuy Agents, who undertake the assessment and approval process and a buyer needs their approval before proceeding.
The ELS requires that the buyer is able to take out a first mortgage with a qualifying lender which, together with the buyer’s deposit, must be a minimum of 80% of the full purchase price of the property. This first mortgage must be on a repayment basis.
The ELS will then provide an equity loan, secured on the property for a maximum of 20% of the purchase price. This loan is interest free for the first five years, after which the buyer will pay a fee of 1.75% of the loan, rising annually by the increase in RPI plus 1%. The loan must be repaid after 25 years or earlier if the house is sold and the amount repayable is the same percentage of the proceeds of the sale as the initial equity loan.
The MGS is designed to make mortgages of up to 95% available, again to credit worthy applicants who meet standard mortgage affordability criteria, but who do not have a big deposit.
The MGS is only available from lenders who have agreed to participate in the scheme. The benefit to the lenders of participating is that if they advance more than 75% of the purchase price of the property, the slice over 75% is guaranteed by the Government in exchange for a small fee paid by the lender.
The buyer of the property does not receive any guarantee of their payments. The mortgage payments have to be paid in exactly the same way as any other mortgage, either in or out of a Government sponsored scheme.
ALWAYS take independent mortgage advice when considering any mortgage or loan for the purchase of a property. The schemes launched by the Government are welcome, but you should always consider if there are better value alternatives, particularly compared to the MGS scheme deals.
If you would like any advice or guidance regarding these schemes, please contact our Property Finance Consultant, Steve Hardaker.
Your home may be repossessed if you do not keep up repayments on your mortgage.
