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If you’re looking for a large mortgage but you don’t have a big deposit, getting a mortgage may be about to become a whole lot easier. The Prime Minister has announced that the government’s controversial Help to Buy scheme will come into force this October – three months early – allowing buyers to purchase a home with just a 5 percent deposit.
The £12 billion scheme is designed to underwrite about £130 billion of mortgages over the next three years. Here, we answer all your questions about how the Help to Buy scheme will work.
The existing Help to Buy scheme – already available – offers loans of up to 20 percent to all homebuyers purchasing a new-build property up to the value of £600,000. The loan is interest-free for the first five years, after which you must pay an annual fee of 1.75 percent of the loan, rising annually. You can repay the loan at any time.
The second part of the scheme – available from October – will allow you to buy or remortgage a property valued at less than £600,000 with a deposit of just 5 percent of the property’s price.
The second part of the Help to Buy scheme will be available for all property purchases, not just new-build homes. The government will guarantee up to 15 percent of the home loan as an insurance policy for the banks.
The mortgage guarantee scheme is available to all borrowers including first-time buyers purchasing a property up to the value of £600,000. It is also open to borrowers who cannot move home or remortgage because of a lack of equity.
Buy-to-let landlords, people looking to buy a second home, or foreign buyers with no credit history in the UK will not be able to get a loan. Interest only mortgages will also not be eligible for the scheme.
Help to Buy has been designed to boost the number of high loan-to-value mortgages on offer but only borrowers that meet strict income tests will be eligible. In addition, if you have adverse credit history you may also find that you’re not eligible.
Only two lenders – Lloyds Banking Group and Royal Bank of Scotland – have confirmed they are taking part in the scheme from the outset. You’ll be able to get a loan via Halifax, Royal Bank of Scotland and NatWest initially with other lenders planning to join the scheme when more details are confirmed.
As yet, no details have been released as to the interest rates that will be available.
The scheme is set to remain in place for three years. However, if it emerges that a house price ‘bubble’ is emerging, the Bank of England will have powers stop the initiative.
For example, the Bank of England will be able to recommend that the government lowers the £600,000 cap on properties eligible under the scheme to reduce its availability to would-be homeowners wishing to enter London’s booming property market.