The Help to Buy scheme, aims to help people who do not have large deposits to purchase homes worth up to £600,000.
The first part of the scheme, Equity Loan, applies only to new-build properties, however the ‘mortgage guarantee’ part of the scheme, is available to both new and old properties.
As with many other Government schemes in recent years, the details can be confusing, so we asked Luke Somerset from CMME, to explain more:
The examples below relate to a contractor looking to buy a £500,000 property.
Help to Buy Equity Loan Scheme
“The Help to Buy Equity Loan has been available since April 2013 and involves a contractor putting down an initial 5% deposit and the Government topping this up with a 20% equity loan which allows them to take out a 75% mortgage.
“If you were using the Help to Buy scheme, then the example would be that the contractor would put down a £25,000 deposit, and the Government would put down £100,000 (a 20% loan). The contractor would then secure a mortgage of £375,000 to make up the total purchase price of £500,000.
“The 20% loan from the Government would be interest free for the first five years and would rise in line with inflation after that and would need to be repaid if you sold the property or after 25 years. This is only available on new build properties.”
Help to Buy Mortgage Guarantee Scheme
“With the Mortgage Guarantee Scheme, on a £500,000 purchase price, the contractor will need to put down a 5% deposit of £25,000 and apply for a 95% mortgage of £475,000 from the lender.
“The lender will then apply for the Mortgage Guarantee scheme so that they are protected by the Government for 15% of the purchase price, £75,000 in this case, if the contractor defaults on their mortgage.
“The lender will pay any fees associated with the Mortgage Guarantee so the contractor only has to cover their mortgage repayments and there will be no loan to repay.
“The Mortgage Guarantee scheme will encourage lenders to offer high LTV (Loan to Value) mortgages at competitively low rates because they will only be taking on the risk associated with a 75% LTV mortgage.
“The scheme will be available on all purchases and remortgages up to the value of £600,000 and will be available on loan to values of between 80% and 95%.
“Unlike the Help to buy Equity Loan scheme, this new Mortgage Guarantee is available on any property so it is not limited to new build homes and is available to first time buyers and existing homeowners alike.
“It opens the door to home ownership to many thousands more contractors who will have been struggling to raise the necessary deposit or who will have baulked at the idea of drawing the necessary taxable dividend to put down the funds required to secure the most competitive of interest rate schemes.”
If you’d like to take advantage of either scheme, you can get a personalised mortgage quote and advice here.
You can view the ‘official’ guide to Help to Buy at https://www.helptobuy.gov.uk/.