The mortgage guarantee scheme, which is designed to help first-time buyers and existing property owners move up the housing ladder. There are 2 schemes:
1. Help to Buy Phase 1
Allows first time buyers to take their first step onto the property ladder by borrowing up to 20% of the value of a New Build home from the Government, interest-free for the first five years. Borrowers need a 5% deposit and must take out a mortgage to cover the remaining 75% of the cost of the property. After the five-year interest-free period ends, borrowers will be charged a fee of 1.75% of the loan’s value. This fee will increase every year at 1% above inflation. These fees only count toward the Government loan and come on top of the mortgage repayments. Borrowers must pay back the equity loan when they sell the home or at the end of the mortgage period, whichever comes first.
2. Help to Buy Phase 2
Available to both first time buyers and existing home owners buying New Build or 2nd hand residential (older) properties. Borrowers will need a 5% deposit, while the lender will be able to buy a guarantee from the Government covering up to 15% of the value of the property. This will make it less risky for lenders to offer a mortgage to a borrower with only a 5% deposit and should enable them to offer cheaper rates.
3. Both phases of the scheme are available on properties worth up to £600,000.
4. The Government will guarantee up to 15% of the loan at a cost to the lender, allowing the borrower to access cheaper mortgage deals. The Government has set aside £12bn of guarantees for up to £130bn of mortgage lending and the scheme will remain open for three years to January 2017. Borrowers will be able to register their interest as soon as the banks launch their Help to Buy products.
5. Two banks are signed up already: Lloyds, which owns Halifax, and Royal Bank of Scotland, which owns NatWest. A third lender, Aldermore, committed to offering the Government’s Help to Buy mortgage guarantee scheme, but said it will not launch products until next year. RBS and Lloyds said they have not yet decided how much their products will cost but experts are predicting the interest rates are likely to sit between 4.5% and 5% for a two-year fixed rate at 80% loan to value. Borrowers who use the scheme will present a lower risk to lenders because the Government is guaranteeing up to 15% of the loan. This will allow lenders to give them a cheaper mortgage, however they are unlikely to get the same deals as someone who has a track record of saving a large deposit.
For more information on the Help to Buy Scheme contact our sales office on 01923 776400.