This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.
You can find the current article at its original source at http://www.guardian.co.uk/money/2013/mar/20/help-to-buy-scheme-how-it-works
The article has changed 7 times. There is an RSS feed of changes available.
| Version 4 | Version 5 |
|---|---|
| Help to Buy scheme: how it will work | Help to Buy scheme: how it will work |
| (2 days later) | |
| One of the big surprises of the budget was the chancellor's announcement of a homebuying scheme called Help to Buy. | One of the big surprises of the budget was the chancellor's announcement of a homebuying scheme called Help to Buy. |
| What is the Help to Buy scheme? | What is the Help to Buy scheme? |
| Help to Buy will take two forms: one part offers buyers the opportunity to take an interest-free loan from the government; the other sees the government acting as guarantor for some of a borrower's debt. Both will be available for homes worth up to £600,000 and there will be no cap on how much you can earn to qualify. | Help to Buy will take two forms: one part offers buyers the opportunity to take an interest-free loan from the government; the other sees the government acting as guarantor for some of a borrower's debt. Both will be available for homes worth up to £600,000 and there will be no cap on how much you can earn to qualify. |
| How will the loan scheme work? | How will the loan scheme work? |
| The "equity loan" part will start on 1 April 2013 and will help people who want to buy a new-build property. It is similar to the existing First Buy scheme but is available to existing homeowners as well as first-time buyers. Borrowers will need to raise a deposit of 5% of the value of the property they want to buy, but can borrow a further 20% on an interest-free basis. The biggest loan available will be £120,000. | The "equity loan" part will start on 1 April 2013 and will help people who want to buy a new-build property. It is similar to the existing First Buy scheme but is available to existing homeowners as well as first-time buyers. Borrowers will need to raise a deposit of 5% of the value of the property they want to buy, but can borrow a further 20% on an interest-free basis. The biggest loan available will be £120,000. |
| The loan, which will be provided by the government, must be repaid when the property is eventually sold. It can be repaid earlier, but only if the mortgage is paid off at the time. After five years it will attract a fee of 1.75%, which will rise annually by RPI inflation plus 1%. | The loan, which will be provided by the government, must be repaid when the property is eventually sold. It can be repaid earlier, but only if the mortgage is paid off at the time. After five years it will attract a fee of 1.75%, which will rise annually by RPI inflation plus 1%. |
| The Treasury says the £3.5bn scheme will help up to 74,000 buyers. Anyone who is interested in using it needs to contact a participating house builder or HomeBuy. | The Treasury says the £3.5bn scheme will help up to 74,000 buyers. Anyone who is interested in using it needs to contact a participating house builder or HomeBuy. |
| How will the guarantee scheme work? | How will the guarantee scheme work? |
| This part of the scheme, which will be available from January 2014, will help you buy either a new or existing property. Again, you will need to be able to raise a deposit of at least 5% but less than 20% (if you have a bigger deposit, you should have a good choice of mortgages anyway). The government will provide the lender with a guarantee for up to 15% of your loan, allowing it to offer a mortgage even though you have a small deposit. More details will be announced later in the year. | This part of the scheme, which will be available from January 2014, will help you buy either a new or existing property. Again, you will need to be able to raise a deposit of at least 5% but less than 20% (if you have a bigger deposit, you should have a good choice of mortgages anyway). The government will provide the lender with a guarantee for up to 15% of your loan, allowing it to offer a mortgage even though you have a small deposit. More details will be announced later in the year. |
| Who will it help? | Who will it help? |
| The schemes will both be available to new buyers and those who own homes already, but not people buying property to let. The aim is to help both first-time buyers and those stuck on the housing ladder. Because you will need a deposit of at least 5% they will not help if you are in negative equity. The mortgage guarantee scheme could be useful to people who are trying to sell, as it will help buyers purchase existing homes – other schemes have tended to focus on new-build properties. | The schemes will both be available to new buyers and those who own homes already, but not people buying property to let. The aim is to help both first-time buyers and those stuck on the housing ladder. Because you will need a deposit of at least 5% they will not help if you are in negative equity. The mortgage guarantee scheme could be useful to people who are trying to sell, as it will help buyers purchase existing homes – other schemes have tended to focus on new-build properties. |
| The criteria for the equity loan specifically rules out anyone using the scheme to buy a second home, but the outline criteria for the mortgage guarantee element does not. The chancellor has said that scheme is still being consulted on. | The criteria for the equity loan specifically rules out anyone using the scheme to buy a second home, but the outline criteria for the mortgage guarantee element does not. The chancellor has said that scheme is still being consulted on. |
| Does it mean I can get a mortgage? | Does it mean I can get a mortgage? |
| If the only thing standing between you and a mortgage is a lack of deposit, then it should do. If you have other issues – a poor credit history or you are recently self-employed, for example – then no it won't help. Lenders will still be able to choose who they want to lend to. | If the only thing standing between you and a mortgage is a lack of deposit, then it should do. If you have other issues – a poor credit history or you are recently self-employed, for example – then no it won't help. Lenders will still be able to choose who they want to lend to. |
| What rate will I have to pay on the mortgage? | What rate will I have to pay on the mortgage? |
| The government has left it to lenders to set their own rates on the mortgages they offer through Help to Buy, and it is not clear how much they will charge. | The government has left it to lenders to set their own rates on the mortgages they offer through Help to Buy, and it is not clear how much they will charge. |
| Mortgages offered through the guarantee scheme should, in theory, cost less than the 95% mortgages currently on the market, because the government is offering the lender a guarantee. However, it is not clear how much the lender will have to pay for that guarantee and how much it will pass on to the borrower. Rates on the existing NewBuy scheme, which includes a similar guarantee, are below 5%. However, the guarantee on that scheme is paid for by developers. | Mortgages offered through the guarantee scheme should, in theory, cost less than the 95% mortgages currently on the market, because the government is offering the lender a guarantee. However, it is not clear how much the lender will have to pay for that guarantee and how much it will pass on to the borrower. Rates on the existing NewBuy scheme, which includes a similar guarantee, are below 5%. However, the guarantee on that scheme is paid for by developers. |
| It is also unclear if lenders will be allowed to offer these high loan-to-value (LTV) loans without ensuring they have extra capital in place behind the scenes – a provision which adds to the cost of the loans. | It is also unclear if lenders will be allowed to offer these high loan-to-value (LTV) loans without ensuring they have extra capital in place behind the scenes – a provision which adds to the cost of the loans. |
| Currently, a lender has to hold eight times more capital against a mortgage at more than 90% LTV than against a mortgage below 60% LTV. Barclays has managed to achieve relief from this requirement for NewBuy loans, but is the only lender to do so. | Currently, a lender has to hold eight times more capital against a mortgage at more than 90% LTV than against a mortgage below 60% LTV. Barclays has managed to achieve relief from this requirement for NewBuy loans, but is the only lender to do so. |
| What if I fall behind on my payments? | What if I fall behind on my payments? |
| Help to Buy isn't designed to help you if you fall into difficulty with your mortgage, so if you fall behind on your payments you could still lose your property. The guarantee is for the lender and means that if it does end up repossessing and is unable to recover the money from you and/or the sale of the property, the government will step in and make up some of the shortfall. The buyer can still lose their deposit and the lender will still be able to lose up to 80% of the property's value. | Help to Buy isn't designed to help you if you fall into difficulty with your mortgage, so if you fall behind on your payments you could still lose your property. The guarantee is for the lender and means that if it does end up repossessing and is unable to recover the money from you and/or the sale of the property, the government will step in and make up some of the shortfall. The buyer can still lose their deposit and the lender will still be able to lose up to 80% of the property's value. |
| Will it work? | Will it work? |
| Researchers at property firm Savills believe it will increase the number of first-time buyers and second movers who are able to buy homes. They estimate the equity loan scheme could help 25,000 households a year over the next three years, while the mortgage guarantee scheme has the capacity to enable 550,000 extra house sales in the next three years it will be in place. However, they say it is unlikely the UK will build all the homes that it needs, even with this scheme in place. | Researchers at property firm Savills believe it will increase the number of first-time buyers and second movers who are able to buy homes. They estimate the equity loan scheme could help 25,000 households a year over the next three years, while the mortgage guarantee scheme has the capacity to enable 550,000 extra house sales in the next three years it will be in place. However, they say it is unlikely the UK will build all the homes that it needs, even with this scheme in place. |
| The Social Market Foundation has warned the scheme will keep "the housing bubble inflated" and says older wealthy homeowners are the only winners. | The Social Market Foundation has warned the scheme will keep "the housing bubble inflated" and says older wealthy homeowners are the only winners. |
| Top mortgages | Top mortgages |
| Chelsea Building Society | Chelsea Building Society |
| HSBC | HSBC |
| Nationwide | Nationwide |
| Provided by London & Country for the Guardian |