Help to Buy proves more com­pli­cated than lenders sug­gest

Yorkshire Post - Property - - PROPERTY - Franz Muelthaler

Only the other day I read an ar­ti­cle about the level of con­sumer aware­ness con­cern­ing the Help to Buy schemes and it seems aware­ness is mixed.

The gov­ern­ment Help to Buy schemes aim to make mort­gages avail­able to peo­ple with small de­posits. They fall into two cat­e­gories; Eq­uity Loan, which was launched ear­lier this year, and Mort­gage Guar­an­tee, which ap­peared last month, three months ear­lier than ex­pected.

In a sur­vey of 1,022 adults, con­ducted by the Mort­gage Ad­vice Bureau, 37 per cent had heard of Help to Buy eq­uity loans while 32 per cent knew of Help to Buy mort­gage guar­an­tees. They re­ported aware­ness of Help to Buy was sig­nif­i­cantly higher among adults be­low 40, with 42 per cent of adults be­tween 18 and 39 aware of Help to Buy eq­uity loans, ver­sus 31 per cent of those aged over 40. Let me ex­plain the dis­tinc­tion be­tween the schemes and why nei­ther is a get a prop­erty “quick and easy” scheme.

The Gov­ern­ment will loan you as much as 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 only of up to £600,000. The gov­ern­ment will loan you up to 20 per cent of the value of your new home so long as you have a min­i­mum de­posit of 5 per cent. The Gov­ern­ment will then lend you 20 per cent of the value of your new build prop­erty through an eq­uity loan which 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 an in­ter­est rate of 1.75 per cent from year six which will rise an­nu­ally by RPI in­fla­tion plus 1 per cent.

The Help to Buy Mort­gage Guar­an­tee Scheme is aimed at ex­ist­ing prop­erty pur­chase and new build. Its aim is to in­crease the avail­abil­ity of mort­gages for ex­ist­ing home­own­ers as well as first time buy­ers.

Un­der this scheme a de­posit of be­tween 5 per cent and 20 per cent is re­quired on a max­i­mum pur­chase price of any­thing up to £600,000. The Gov­ern­ment will pro­vide guar­an­tees to lenders on a pro­por­tion of the mort­gage, which ba­si­cally means if a bor­rower’s prop­erty is re­pos­sessed the Gov­ern­ment will cover a pro­por­tion of the losses to lower the lender’s risk.

The prob­lem with the lack of con­sumer aware­ness is that there seems to be a mis­con­cep­tion that the gov­ern­ment is guar­an­tee­ing a por­tion of the bor­row­ing – it isn’t! Your home could still be re­pos­sessed if you fail to make the re­pay­ments. Like­wise the schemes aren’t a guar­an­tee of se­cur­ing a mort­gage ei­ther. You will still be sub­ject to the strict cri­te­ria lenders de­mand.

With the eq­uity loan you will have two loans; one with the gov­ern­ment the other with the lender. With the mort­gage guar­an­tee scheme you re­ceive no guar­an­tee; it’s the lender who re­ceives the guar­an­tee.

Also check your el­i­gi­bil­ity. The schemes are open to ex­ist­ing home own­ers and first time buy­ers with a min­i­mum de­posit of 5 per cent of the pur­chase price. Bor­row­ing is from a par­tic­i­pat­ing lender and is avail­able across the UK on newly­built or sec­ond hand homes up to £600,000. The loan has to be for a res­i­den­tial prop­erty where you plan to live in it not rent out and must be your only prop­erty – so you can­not have an in­ter­est in any other prop­erty, any­where in the world. The schemes are not avail­able for buy-to-let land­lords or sec­ond home own­ers.

So when you see mar­ket­ing mes­sages that an­nounce you only need a 5 per cent de­posit to own a home, just think about what that means. You won’t own the home you’ll have a mas­sive 95 per cent loan with lit­tle or no eq­uity.

Franz Muehlthaler from Hol­royd Miller Prop­er­ties in as­so­ci­a­tion with Reach 4 Mort­gage So­lu­tions.

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