The Government’s Help to Buy scheme launched in 2013 is still set to run into 2016. For those thinking that this scheme might help you buy your dream property, there are a few things to consider. The infographic at the end of this post from NatWest serves as a useful illustration of how the scheme works, but first here’s an overview.
Help To Buy – What Help’s Available?
The Help to Buy scheme falls into two categories, the equity loan scheme and the mortgage guarantee scheme:
Equity Loan Scheme
For new build properties only, the government provide a 20% loan to you that is interest free for five years. You provide a 5% deposit and the remaining 75% you fund via a mortgage. You need to pay the government back and you start paying in five years or if you sell before then you need to pay it back then.
I think it is a good scheme and has proved very popular but you need to be aware of the realities of the scheme. As it is for new build properties only then you are limited as to where you can buy and there is limited availability. I tell my clients that if you are looking at this scheme then you need to get yourself to the front of the queue as soon as the show home opens it’s doors, otherwise you are going to miss out, as on each development there are only a limited number of eligible properties.
Mortgage Guarantee Scheme
Slightly more difficult to explain but the main differences on this scheme are that there are no loans or financial assistance of any kind from the government. Secondly you are not restricted to new build properties only.
The government is guaranteeing to mortgage lenders that they will pay them 15% of the mortgage should you not pay the mortgage and get repossessed. What this did when the scheme was launched was encourage lenders to offer higher percentage mortgages, by this I mean higher loan to value (LTV) mortgages. There was a gap in the mortgage market where lenders had stopped giving 95% mortgages to people and this scheme opened it back up. It has been successful and the market in that area is pretty competitive now. As the scheme is going to be stopped next year the lenders are moving away from help to buy but are coming up with their own products and underwriting the risk themselves.
Points to Note for Both Schemes
- Maximum purchase price is £600,000.
- Property must be your only property.
- It is not just for first time buyers.
More information about Help to Buy is on my help to buy mortgages pages. Here’s that infographic from NatWest illustrating the two schemes. Check with individual lenders for more details about their specific products. For example NatWest only offers the shared equity scheme in England, whereas other lenders offer this scheme in the rest of the UK.
Got a question? If you have a question about Help to Buy, or mortgages in general, either leave a comment below or contact me directly. Always happy to help.