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Help to Buy Scheme Brought Forward – Will You Benefit?

It looks like good news for all homebuyers as the government announces that the Help to Buy scheme is being extended next week – three months earlier than originally planned. Buyers will soon be able to apply for mortgages of up to 95% on all types of property. This should be welcome news to anyone trying to sell their home.

This new scheme will now benefit home-movers together with first-time buyers who want to buy an older property rather than a new-build one.

New scheme will help more buyers to get mortgages 

Previous Help to Buy schemes were only available to first-time buyers of new-build homes. The extension of the scheme will now benefit people who already own a property and want to move but do not have sufficient equity to provide a substantial deposit on another property.  

The new scheme will also allow buyers to get mortgages on existing homes as well as new-build ones.  

So potential buyers who until now have not been able to find a large-enough cash deposit should now find that they can get a mortgage provided they can find a deposit of between 5% and 20% of a property’s value.  

Buyers can now get higher loan-to-value mortgages

The government and the lender will jointly guarantee the loan up to the next 15 per cent of the property’s value. Because lenders know that they will have the benefit of this guarantee they can offer high loan-to-value mortgages.

It had previously been announced that this guarantee scheme would be introduced in January 2014. But the government has now said that it will allow lenders to start writing loans from nest week that will become part of the scheme once it opens in January.

Because lenders know that they will be able to purchase a guarantee on these loans when the scheme opens it means that they can offer high loan-to-value mortgages much sooner.  

Restrictions on qualifying loans 

It will not be possible to obtain loans under this scheme from all mortgage lenders, so borrowers’ choice of mortgage products will be restricted. Lenders will have to pay a fee for the government guarantees, and only lenders who have signed up to the scheme can purchase them.

It is understood that Halifax, RBS and Nat West have already signed up to it. But other high-street lenders such as HSBC, Santander, Nationwide and Barclays have yet to decide whether to join.

There are other restrictions on the scheme:

  • Only repayment mortgages will be offered, not interest-only loans.  
  • Loans will only be available on properties up to a maximum value of £600, 000.
  • There will be tough checks to make sure buyers can afford their mortgage payments and the borrowers’ income will be verified.
  • The scheme will not include interest-only or self-certified mortgages.
  • The new mortgages will not be available to people with a history of difficulties making debt repayments.

Will this herald a boom in house prices?

It remains to be seen whether this extension of the Help to Buy scheme will fuel a boom in house prices as some critics have suggested.  

However one criticism of the existing scheme has been that it only benefited developers building new homes. Homeowners who have wanted to sell an existing home have found it difficult to do so over the last few years as buyers have found it difficult to get mortgages. This has undoubtedly caused many owners to delay putting their properties on the market, causing a shortage of homes for sale.

Extending the scheme to cover existing properties may well therefore encourage more owners to consider selling. A wider choice of homes for sale will benefit buyers and could help to prevent a runaway increase in prices.

In any case the official announcement does say that the government and the Bank of England Financial Policy Committee will review the impact of the scheme every September and examine whether the fees or the price cap should be adjusted.  

The scheme is scheduled to end in 2017 in any case but it should not be assumed that it will continue in its present form for the whole of that period.


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