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Help to Buy

Bookers & Bolton Solicitors can do your conveyancing for a Help to Buy mortgage, which is a government-backed scheme first announced in the March 2013 Budget, with the aim of helping first time buyers and existing homeowners purchase a home with as little as 5% deposit by making more low deposit/high loan-to-value (LTV) mortgages available, thus making buyers less reliant on financial assistance from friends and relatives.

 

It is designed to help buyers who wish to purchase their first home, or who are looking to move up the property ladder, but who have insufficient funds to make the ‘jump’.

 

There are 2 ways to purchase a property with Help to Buy:

  • With an Equity Loan
  • or a Mortgage Guarantee.  

 

Buyers will need to choose which is most applicable to their situation and requirements.

Help to Buy Equity Loan Scheme

This was launched on 1 April 2013 and is available until 2020.  Both first-time buyers and existing homeowners are eligible to apply – however it applies only to the purchase of a new build home from a Help to Buy registered builder.

 

Prospective buyers have to raise at least 5% of the purchase price as a deposit, with the Government offering a loan of up to 20% of the purchase price as an Equity Loan through the Homes & Communities Agency (HCA).  Buyers will need a mortgage of up to the remaining 75% of the purchase price from a participating mortgage lender.

 

No interest or fees are payable on the Government’s loan for the first 5 years.  However, in year 6 Buyers will start paying a monthly fee which is calculated as 1.75% of the loan.  Thereafter, the monthly fee increases every year, and is calculated at the Retail Price Index (RPI) + 1%.  It should be noted that these payments made by buyers after year 5 are in addition to their normal monthly mortgage payments.  They do not count towards the repayment of the Equity Loan, and should be treated as an ‘admin fee’.  The Equity Loan itself does not decrease in size unless a buyer opts to repay part of it early.

 

Over time, this monthly fee could work out to be fairly expensive – especially if inflation substantially increases.

 

The Equity Loan must be repaid in full after 25 years or on the sale of the property, whichever is earliest.  The amount of the repayment will depend on the market value of the property at the time of the sale, not the amount of the original loan.  For example, if an Equity Loan of 20% of the purchase price was obtained to buy a property, then 20% of the market value of the property at the time of sale must be repaid.  If house prices have gone up considerably, the amount of the repayment could be a lot more than the original loan.

 

Conversely, if the value of a property has dropped, the amount of the repayment could be less than the original loan.

 

The Equity Loan can be repaid in part or in full without penalty at any time, with the minimum repayment being 10% of the market value of the property (as opposed to the purchase price), and the remaining loan amount being at least 10% of the market value of the property.

 

The mortgage which makes up the rest of the purchase price will be at the lender’s interest rate prevailing at the time of application and buyers will still be responsible for paying the mortgage in exactly the same way as any other mortgage.  If a buyer gets into arrears they are still at risk of repossession.

 

As the degree of risk to a mortgage lenders increases as the LTV increases, a buyer wishing to borrow 75% of the purchase price will be able to access mortgages with lower interest rates than one wishing to borrow a higher loan-to-value.

 

Buyers thinking about this type of scheme should consider the following:

  • It is available to both first-time buyers and to existing homeowners alike
  • It only applies to the purchase of new build properties from a registered Help to Buy builder
  • It only applies to properties worth up to £600,000
  • It only applies to properties to be used as a main residence and cannot be used to purchase a buy-to-let property
  • Buyers will need to have a deposit of at least 5% of the purchase price
  • Buyers will need a mortgage of 75% of the purchase price (and may be able to access mortgages with lower interest rates than one wishing to borrow at a higher LTV)
  • Buyers will still have to meet mortgage lenders’ lending criteria
  • Not all mortgage lenders participate in the scheme
  • It cannot be used in conjunction with any other scheme such as shared ownership
  • The mortgage is repayable on a capital repayment basis, interest-only mortgages are not included in the scheme.

 

Although the Equity Loan is interest and fee-free for the first 5 years, thereafter a fee is payable on a monthly basis, in addition to the monthly mortgage payments.

 

Those interested in this scheme should contact a local Help to Buy agent, who will administer the equity loan scheme, and who will be able to provide details of local Help to Buy registered builders and of participating lenders. 

 

At Bookers & Bolton we can support you through the process of buying a new home.

 

Call our Property Team on 01420 82881 to discuss your needs.  

Email:  claire@bookersandbolton.co.uk or dawn.booker@bookersandbolton.co.uk

Or get an Online Quote immediately using our Quick Quote button.  

Help to Buy Mortgage Guarantee

This was launched in October 2013 and is scheduled to end on 31 December 2016.

 

Unlike Equity Loans, this type of scheme is available to prospective buyers of both new build and existing properties.

 

The purpose of the Help to Buy Mortgage Guarantee scheme is to provide lenders with a Government guarantee on loans to buyers with a deposit of between 5% and 20%, and is designed to increase the supply of more high loan-to-value (LTV) mortgages (ie. loans of between 80% and 95% of the purchase price of a property) available to such buyers.  It should be noted that under the scheme, the Government provides a guarantee to the mortgage lender (not to the buyer).

 

Following the financial crisis there was a sharp drop in the number of high LTV mortgages available to borrowers.  With the Government guarantee in place Help to Buy mortgages are less risky for lenders than ordinary high LTV mortgages.  As a result lenders are likely to offer a wider range of 80% – 95% mortgages and at potentially better rates than they otherwise would have done, as they get Government-backed guarantees on every high LTV mortgage they offer under the scheme.

 

A Help to Buy mortgage is a normal mortgage, but with a ‘behind-the-scenes’ arrangement between the lender and the Government.  Whilst buyers will have to sign a declaration, it will not make any difference that their 95% mortgage falls under the Mortgage Guarantee scheme.  Buyers will still be responsible for paying the mortgage in exactly the same way as any other mortgage.  If they get into arrears they are still at risk of repossession.

 

Buyers should bear in mind that participating lenders are free to set their own interest rates so there is no guarantee a Help to Buy mortgage will be the cheapest option available to them.  It is also worth looking at mortgages from non-participating lenders.

 

Buyers thinking about this type of scheme should consider the following:

  • It is available to both first-time buyers and to existing homeowners alike
  • It applies to the purchase of both new build and existing properties
  • It only applies to properties worth up to £600,000
  • It only applies to properties to be used as a main residence and cannot be used to purchase a buy-to-let property
  • Buyers will need to have a deposit of at least 5% of the purchase price
  • Buyers will need a mortgage of 95% of the purchase price
  • Buyers will still have to meet mortgage lenders’ lending criteria
  • Not all mortgage lenders participate in the scheme
  • It cannot be used in conjunction with any other scheme such as shared ownership
  • The mortgage is repayable on a capital repayment basis, interest-only mortgages are not included in the scheme.
  • Buyers will make monthly mortgage repayments in the usual way, and there are no additional payments to be made.

 

Those interested in a Help to Buy Mortgage can apply for a mortgage through participating high street lenders or through a mortgage broker.

Help to Buy ISAs

These are a new type of tax-free savings account aimed specifically at first-time buyers, and are to be introduced in late 2015.

 

At Bookers & Bolton we can support you through the process of buying a new home.

 

Call our Property Team on 01420 82881 to discuss your needs.  

Email:  claire@bookersandbolton.co.uk or dawn.booker@bookersandbolton.co.uk

Or get an Online Quote immediately using our Quick Quote button.