RESIDENTIAL CONVEYANCING – HELP TO BUY
The Government’s Help to Buy scheme was announced in the 2013 budget. The scheme is in two parts; the equity loan scheme and the mortgage guarantee scheme.
Help to Buy: Equity Loan
The equity loan scheme runs from 1st April 2013 and is due to run for 3 years. The scheme expands the former FirstBuy scheme.
The scheme applies to new build properties only but is no longer restricted to first-time buyers and is available to all purchasers. The scheme aims to help those looking to purchase a new build home but make their mortgage repayments more affordable than they would be without the assistance of the scheme.
Buyers looking to use the Help to Buy scheme will need a minimum 5% deposit to qualify up to a maximum purchase price of £600,000. The Government will lend buyers up to 20% of the value of the property being purchased meaning that a mortgage for 75% of the value of the property is needed.
By way of example if a buyer is looking to purchase a property at £200,000 then he/she will need to put forward £10,000 by way of deposit, the Government will put forward £40,000 under the Help to Buy scheme and the remaining £150,000 will be provided by a bank or building society by way of a residential mortgage. Without the Help to Buy scheme in this example the buyer would need to borrow £190,000 from a commercial lender. This may result in difficulty obtaining traditional mortgage funding at such a high loan-to-value ratio or could make the mortgage repayments unaffordable.
The 20% Government assistance is provided by way of an equity loan which can be repaid at any time or on the sale of the property. For the first 5 years of home ownership there will be no loan fees charged. In the 6th year of ownership a fee of 1.75% of the loan’s value will apply and for each year thereafter the fee will increase each year calculated by using the Retail Prices Index plus 1%.
The property will be purchased in the name of the buyer and is not purchased together with a Housing Association by way of a shared ownership scheme. The property owner will be able to sell the property at any time (although he/she will not be able to sublet the property) and will need to repay the equity loan on the sale or at the end of the mortgage term, whichever is the earlier.
Under the current guidance purchasers will be able to repay a proportion of the equity loan without selling the property in tranches of either 10% of 20% of the total amount as long as the loan is worth at least 10% of the property value.
This firm is not authorised by the Financial Conduct Authority and therefore we cannot provide you with financial advice. The above information is general guidance based on the information currently issued by the Government. If you would like to discuss eligibility or repayments in detail you will need to contact your local HomeBuy agent and further information on agents in your area is available at www.helptobuy.org.uk
Help to Buy: Mortgage Guarantee
The mortgage guarantee scheme will run from January 2014 for 3 years. The scheme will be available in respect of both new build and existing properties and for existing homeowners and first-time buyers. There is a purchase price cap of £600,000 for scheme eligibility.
As with the equity loan scheme buyers will need as little as 5% by way of deposit but purchasers will need to obtain mortgage funding for the remainder of the property value. Based on a purchase price of £200,000 the purchaser would need to provide at least £10,000 by way of deposit with the remaining £190,000 (or less if more than £10,000 is available by way of deposit) being provided by a bank or building society.
Under the scheme however the Government guarantee will encourage lenders to offer better access to low-deposit mortgages. The aim is to enable purchasers with a small deposit who are able to afford repayments on an 80-95% mortgage access to mortgage funding for purchases or remortgages.
Humphreys & Co. 20.5.13