What Is The UK's New Help To Buy Scheme?
The UK's Help to Buy scheme may assist you in purchasing a property worth up to £600,000 - be it a new build or a pre-owned home - with a deposit of as little as 5% of the property's purchase price. The scheme will be of benefit to you if you believe you can afford mortgage repayments, but cannot raise the large deposit associated with traditional mortgages.
How does the Help to Buy scheme work?
The scheme takes two forms: one part, the "equity loan" part, enables you to take out an interest-free loan from the government; the other, the "guarantee part", enables the government to act as a guarantor for some of your debt.
The "equity loan" part of the scheme was introduced in April 2013. This part of the scheme may help you to purchase a new-build property. You will need to raise a deposit of 5% of the value of the property you wish to purchase, but you can borrow a further 20% interest-free for the first five years, if you need to do so. You must repay the loan, which is provided by the government, with the proceeds from the sale of your property. You will be free to repay the loan earlier, but only if you pay off your mortgage at the same time. After five years, your loan will attract a fee of 1.75%, which will increase yearly by Retail Price Index (RPI) inflation plus 1%.
The "guarantee part" of the scheme was introduced in October 2013. This part of the scheme may help you to purchase a new or existing property with a deposit of between 5% and 20%. The government will provide your chosen lender with a guarantee for up to 15% of your loan, allowing the lender to offer you a mortgage, regardless of the small size of your deposit.
Is the scheme available throughout the UK?
The Help to Buy scheme operates in England only however similar schemes are available in Wales and Scotland.
Will the scheme help me?
The scheme will be able to help you whether you have not previously owned a home or are an existing homeowner. However, you will not be able to take advantage of the scheme if you wish to buy a property to rent out to others.
Will the scheme help me to acquire a mortgage?
If the only thing standing in your way of acquiring a mortgage is a lack of a large deposit, the scheme should be able to help you. If, however, you have a poor credit history, are unemployed or have recently chosen to become self-employed, the scheme may not help you to acquire a mortgage.
What rate will I have to pay on my mortgage?
Under the Help to Buy scheme, lenders are free to set their own mortgage rates. Mortgages offered through the scheme should, in theory, cost less than the 95% mortgages available on the market. This is because the government will act as a guarantor for some of your debt. That said it is important to realise that, in order to participate in the scheme, lenders must pay the government a fee so this may not always be the case.
What will happen if I fall behind on my mortgage repayments?
Unfortunately, the Help to Buy will not help you if you fall behind on your mortgage repayments. The guarantee is for the lender only and this means that if the lender is unable to recover your debt from the sale of the property, the government will help to make up the shortfall.
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Source by Matt D Lambourne
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