The ‘Help to Buy’ Scheme explained


The Help to Buy scheme is a Government initiative borne from the Budget in March, 2013. It is the UK Government’s answer to helping people struggling to gain a foot hold on the property ladder due to lack of deposit or lack of equity in their first property.

There are two elements to scheme, something that potential home buyers who could tap in to the scheme need to know about. Some conveyancers and solicitors are also familiar with the scheme, as well as the new online companies, such as Online Conveyancing Quote. Their familiarity with the scheme can help in moving the conveyancing process along at a pace that is conducive to getting the property bought and sold in good time.

Part 1 – Equity Loan

Launched in April 2013, and available until 2020, the Equity Loan scheme is open to both first-time buyers and home movers but, is restricted to new-build homes.

Under this scheme, the buyer will only need to find 5% of the property value as a deposit, with the Government stumping up a 20% loan under the Homes and Communities Agency. This combined deposit of 25% means that the buyer will have access to much more competitively priced mortgage deals from banks, thus making buying a property far more affordable in the longer run.

The 20% portion, however, will need to be repaid but the terms and conditions are quite generous, making it a scheme worth looking at. The first five years of the loan are interest free; in year six, the interest rate will be 1.75%, increasing by 1% a year after that, plus any increase in inflation. You can pay it back at any time, with no penalty too making it attractive.

However, if you have not paid it back if and when you move, the Government will take 20% of the value of your property back, which is the house value has increased significantly, could be a sizeable sum.

The property value can be up to £600,000 and there is no maximum income requirement, and as stated previously, must also be a new build. And, it must be your only place of residence and neither can you use it as a buy-to-let.

All this said, there is still the mortgage lender’s criteria that you can meet the monthly repayments, and your credit score will still need to be in a good state of health too, something that could prove a hurdle for some affected badly by the 2008 recession.

Not all lenders are part of the Equity Loan scheme, thus it pays to spend some time searching the mortgage lenders that do operate under it.

Part 2: Mortgage Guarantee

The second element of the Government’s Help to Buy scheme is the Mortgage Guarantee. It is designed to help out first time buyers and house movers with a small deposit to get a better mortgage deal.

Scheduled for launch in January 2014, the UK Government brought forward the scheme and it was unveiled in early October, 2013. It will end on 31 December 2016.

Unlike the Equity Loan scheme, this part of the deal applies to both new build and existing properties, with the maximum purchase price being £600,000.

Essentially, this part of the scheme means that the home buyer only needs 5% deposit of the value of the property, with the Government guaranteeing a further 15%.

This combine 20% of the property value once again means that buyers can search for better prices and offers in terms of mortgage deals and rates. This Mortgage Guarantee scheme is a ‘behind the scenes’ deal between the lender and the Government. The home buyer will need to sign a declaration and you will need to pursue a 95% mortgage deal (in other words, the bank still owns 95% of your property) and you will need to be able to afford this mortgage.

There are restrictions, as predicted; the property bought under the scheme must be your main home, not a second home nor a buy-to-let property. It cannot be used in conjunction with any other scheme on offer from social landlords, such as Shared Ownership and so on.

The same checks will be carried out on potential mortgage applicants, including your credit score and detailed affordability check. Again, not all lenders are participating in the scheme thus, if you think this scheme fits your situation, then check who will accept the 15% Government Guarantee.

The Help to Buy scheme has already helped many people take steps to owning their own home – could it help you?

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