The Governments Help to Buy Scheme has featured heavily in the news recently and with David Cameron, UK Prime Minister, announcing that he was bringing forward the scheme from January 2014 to next week, it’s time to see who and how Help to Buy can help those looking to step onto the housing ladder.
What is Help to Buy?
Help to Buy is designed to help borrowers with deposits of just 5 per cent get on to the property ladder.
The first part of the scheme was launched in April and offers loans of up to 20 per cent to all homebuyers purchasing a new-build property up to the value of £600,000.
The loan will be interest-free for the first five years, after which buyers must pay an annual fee of 1.75 per cent of the loan, rising annually by retail price inflation plus 1 per cent. Borrowers can repay the loan at any time.
The second part of the scheme – the mortgage guarantee – will allow buyers of properties valued at less than £600,000 to borrow with a deposit of just 5 per cent of the property’s price.
Unlike the equity loan scheme, the mortgage guarantee will apply to all property purchases, not just new-build homes. The government will guarantee up to 15 per cent of the home loan as an insurance policy for the banks.
Who can apply?
The mortgage guarantee scheme is available to all borrowers – not just first-time buyers – purchasing a property up to the value of £600,000.
Buy-to-let landlords, people looking to buy a second home, or foreign buyers with no credit history in the UK will not be able to get a loan.
The scheme is also open to so-called mortgage prisoners – borrowers who cannot move home or remortgage because of a lack of equity.
What could go wrong?
A lot of the news surrounding Help to Buy has highlighted the fact the scheme will inflate house prices even more, making houses ever more unaffordable for future generations. Experts also point to the fact that the scheme fails to deal with the real problem: a lack of housebuilding.
How long will the scheme last?
The mortgage guarantee scheme will be in place for three years. However the Bank of England will be given powers to place an emergency brake on the scheme should signs of a bubble emerge. The BoE will be able to recommend that Mr Osborne lowers the £600,000 cap on properties eligible under the scheme to reduce its availability to would-be homeowners wishing to enter London’s booming property market