The Help to Buy Mortgage Guarantee Scheme was an initiative launched by George Osbourne in his Autumn Statement in 2013. It was described as a ‘landmark’ scheme that would get thousands of Britons on the housing ladder. Applicants only needed to provide 5% deposit and the Government would offer a 20% mortgage guarantee to the lender. The lender would provide a 95% mortgage but underwrite more favourably given the additional security offered under the guarantee. According to figures released by the treasury, more than 86,000 households have been helped by the scheme.
New Chancellor, Philip Hammond announced the closure of the scheme by letter to the Governor of the Bank of England. It will end on 31st December 2016 but it was stated that it was always due to end then. He said that the scheme was ‘introduced with a specific purpose that has now been successfully achieved’. The Government believe that the scheme is no longer needed as confidence has returned to the mortgage market. Although there are a number of lenders offering 90-95% mortgages, applicants need an exceptionally high credit score with these products.
In my opinion, I think that this withdrawal will have a detrimental effect on first time buyers. Although, there are still a number of other Help to Buy, shared ownership and right to buy initiatives available. However other commentators believe these types of schemes only make the housing crisis worse, with supply unable to meet demand. The availability of cheap credit and these Help to Buy schemes push up prices and don’t address the housing shortage.
There are still a number of Help to Buy mortgage schemes still available such as:
Help to Buy ISA
Savings scheme available from Autumn 2015 to help first time buyers save a deposit. The Government will contribute 25% on top of anything saved by the applicant. An initial lump sum deposit of £1,000 is allowed which will mean £250 is paid in by the Government. A maximum monthly contribution of £200 is allowed which will mean a further £50 monthly contribution from the Government. The maximum allowed to be saved under the scheme is £12,000 which will increase to £15,000 with the Government incentive. Interest is obviously payable on these accounts so the final amount saved could be considerably more.
The scheme is only available to first time buyers and can only be used as a deposit on a main residence. The Government 25% incentive is only released when the purchase of the property is finalised. The scheme is only available on properties up to £450,000 in London or £250,000 through the rest of England. First time buyers must save at least £1,600 to be eligible for the Government bonus. Although there is no time limit on the account and can be open as long as it takes to find a suitable property to buy.
Help to Buy Equity Loan
This is a scheme aimed to help both first time buyers and builders of new homes. The Government will lend an applicant up to 20% of the cost of a newly built home. Hence only 5% deposit is needed and a mortgage of 75% is required to complete the purchase. The equity loan from the Government will not attract any interest for the first 5 years of owning your home. Although when you sell the property the Government takes it’s share of the future sale price. Maximum available equity loan is £120,000 in England (£240,000 in London) and is secured by second charge against the property.
After the initial 5 year interest free period you must pay 1.75% interest on the equity loan. Thereafter the rate charged increases by the increase (if any) in RPI + 1%. The equity loan is repayable after 25 years or on sale of the property whichever is sooner. An applicant is charged a monthly fee of £1 from the start of the loan until it is repaid.
Mosaic Mortgages are specialist mortgage advisors that can help with all you Help to Buy mortgage, right to buy and shared ownership enquiries. We can assess your particular circumstances and advise you of the most appropriate mortgage for your needs. Contact us for a no obligation quote and to see whether you are eligible for any of the specialist affordable housing mortgage schemes currently available.