In March this year the Government announced its new Help to Buy scheme – aimed at helping people to get on or move up the housing ladder with a focus on improving the access to and affordability of mortgages.
Help to Buy comes in two parts – the first, launched on 1st April, is an equity loan scheme which sees the Government lend up to 20% of the value of a new build home. The buyer puts down a deposit of at least 5% and must then find a mortgage for the remainder.
The second scheme, called the mortgage guarantee, was due to launch in January next year and it’s this that the Government has brought forward in a surprise announcement at the weekend.
Although, the launch is now imminent (due next week), the full details are yet to be announced by the Government. So far, here’s what is known about the scheme:
How will it work?
It will work by providing a guarantee to lenders – effectively underwriting a proportion of the mortgage they lend. If a borrower’s property is repossessed, the Government will cover part of the loss suffered by the lender.
The idea is that this Government guarantee will encourage lenders to offer better access to low-deposit mortgages by mitigating the risk of lending. The guarantee is essentially an insurance policy which the lender will pay for.
Who can get it?
Like the equity loan option, this is available to homemovers as well as first-time buyers with the same maximum property value of £600,000 – although it’s not restricted to new build homes. You’ll still need your own deposit of 5% or more, but it should give you a better choice of mortgages at lower interest rates.
What rates are on offer?
What is still unknown at this point is which lenders will take part in the scheme and what mortgage rates will be offered. When announcing the launch, David Cameron said that the two state-owned banks RBS (and its Natwest subsidiary) and Lloyds (via its Halifax subsidiary) would be participating from the outset, however there has been no sign of actual mortgage deals yet from them or any other lenders.
Until more details are announced on the scheme – particularly around the cost and other implications for participating lenders – it’s impossible to know what rates will be on offer. That’s not to say 95% mortgages aren’t available yet – there are some around, but the expectation is for more deals at lower rates under the scheme itself.
More information and useful links
If you’re buying a new home, whether you have a deposit of 5% or 50%, L&C can help. Call 0800 953 0304 or request a call back.
The Government has more details on its Help to Buy scheme here - http://www.helptobuy.org.uk/ although at the time of writing, it is still referring to a January launch for the mortgage guarantee part. This is for the Help to Buy scheme available in England – there are similar schemes available in Scotland and Wales.
Download our free first time buyer mortgage guide here (this also still refers to a January launch for the mortgage guarantee part).
YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE