How the Budget will afffect your chances of buying a home
get-on and purchase those homes they can’t quite finance in the current climate. Called Help to Buy they fall into categories: Equity Loan and Mortgage Guarantee. Government will loan you up to 20 per cent of the value of your new home and incentivise lenders to make more mortgages available for people with smaller deposits.
The Help to Buy Equity Loan is for new build purchases of up to £600,000 and will be on the market from April 1, 2013. Available for three years, its aim is to expand the First Buy scheme and make available the opportunity of purchasing a new home to all purchasers - not just first-time buyers.
To qualify you will still need a deposit, which is set at a minimum of five per cent. The Government will then lend you 20 per cent of the value of your new build property through an equity loan. The loan can be repaid at any time within 25 years (or the term of the mortgage), or on sale of the property. The loan is interest free for the first five years with a fee of 1.75 per cent from year six which will rise annually by RPI inflation plus one per cent.
This is certainly a great offer if you cannot muster a 20 per cent deposit or more, but please remember you still need to secure a 75 per cent mortgage.
Your other option is the Help to Buy Mortgage Guarantee Scheme. Available from January 2014 it is aimed at new build and existing property purchase and will increase the availability of mortgages for people with small deposits and support £130bn of high loan to value mortgages.
Available to existing homeowners as well as first-time buyers, the scheme will run for three years and requires a deposit of between five per cent and 20 per cent on a maximum purchase price of anything up to £600,000.
Under this scheme, the Government will provide guarantees to lenders on a proportion of the mortgage. If a borrower’s property is repossessed the Government will cover a proportion of the losses suffered by the lenders, thus lowering the risk for the lender.
As I’m sure you can appreciate, not enough time has passed since the budget for the initiative to filter down into a commercial offering. The Government has stated they will be providing further details on how to get a Help to Buy Guarantee Scheme mortgage later this year. It seems like we have a few more options to get on and move up the property ladder than we did this time last year.
The schemes are aimed at helping people onto and up the property ladder, not for investors to take advantage of a good deal. Therefore capital repayment mortgages will be the only payment option with interest only and buy to let unavailable.
Be aware that Help to Buy does not automatically qualify you for a mortgage and you will still have to fund the remaining loan yourself through a mortgage.
You will still be subject to your mortgage lender’s criteria, credit checks and affordability calculators and your home could still be repossessed if you default on the repayments.
Although the Government has pledged to financially back both schemes, they will have no control over the interest rates. Nor do they have control over which lenders will offer the schemes and certainly no control over the final lending decisions. My advice is stay in touch with an independent mortgage advisor to stay on top of developments.
Franz Muehlthaler from Holroyd Miller Properties in association with Reach 4 Mortgage Solutions.