Getting a foot on the property ladder can seem like an unsurmountable task for many people in the UK, which is why the government announced the launch of a new scheme to help at the last budget.
The ‘Help to Buy’ scheme is a new initiative for those looking to buy a home and is designed to support those who have a 5% deposit buy their first home, or climb further up the property ladder.
To qualify for a Help to Buy mortgage guarantee, buyers must:
Be purchasing a home worth less than £600,000
Be using the house as their main home
Be fully owned by the purchaser
Be a UK citizen, or someone with the right to remain indefinitely in the UK
It’s not possible to use the scheme to purchase a second home, or a buy-to-let property, but you don’t have to be a first time buyer and there’s no limit on your level of income.
What support does Help to Buy offer?
There are two ways in which a home buyer can benefit from the scheme: Equity Loan and Mortgage Guarantee.
Equity Loan is already available through UK house builders, such as Persimmon Homes, and will be available for the next three years. Mortgage Guarantee is not yet available and will be launched in January 2014.
This is due for launch in January 2014 and can be used for both new builds and existing properties. Applicants will still need a 5% deposit, but rather than offering a loan, the government guarantees a portion of the mortgage, allowing lenders to offer a higher proportion of low-deposit mortgages.
This is available to first time buyers and existing homeowners when they buy a new build property. In order to benefit from a 75% mortgage, buyers must have saved a 5% deposit and the government will contribute an additional 20% through an equity loan.
This reduces monthly repayments and makes the home more affordable. The equity loan is free from interest for the first five years and can be repaid at any time, or when the house is sold.
The Equity Loan scheme effectively replaces the FirstBuy scheme which was previously available to first time buyers.
This means that a home purchased for £124,750 will require a 5% deposit of £6,238, with a 20% government contribution of £24,950, leaving a mortgage repayable of £93,563.
For a standard repayment mortgage, this would result in monthly payments of around £500, depending on the lender and interest rates. The Equity Loan scheme began in April this year and is said to have got off to a “flying start”.
According to the Home Builders Federation (HBF), some 4000 homebuyers have reserved a home since the scheme first launched and it’s thought that this has boosted prices, which are rising at the fastest rate since September 2010.
"The Equity loan part of Help to Buy has got off to a flying start," said Stewart Baseley, executive chairman of the HBF.
"Four thousand reservations in just two months shows both the consumer demand for the scheme, and developers' commitment to it," he said.
The scheme is set to run until 2017 and has been criticised by some economists for forcing up the prices of houses.
Article by Brett MacDougall - Brett is a Director of Hunters Camberwell branch. Brett loves Camberwell and likes to blog about the local area, as well as offering tips for first time buyers.