The Prime Minister has bought forward the launch of the Help to Buy (mortgage guarantee) scheme to October, instead of January 2014. But let’s review the small print before we all start celebrating the launch of the (some say) controversial scheme and how it may create a housing bubble.
The Help to Buy MG scheme will help people buy a home up to £600,000 with just a 5 per cent deposit. The government will then provide the lender with a guarantee for the next 15 per cent of the property’s value, charged as an interest free equity loan to the consumer, for a fee (after year five). A lender will offer the remaining amount as a first charge, subject to normal mortgage terms and underwriting and the scheme will be open for three years. This is to purchase any property and is not restricted to new build properties as per the existing Help to Buy scheme. So 5% deposit, 15% equity loan (interest free) and 80% mortgage.
Secondly, at the time of writing, many questions were still yet unanswered and only three lenders had committed to the scheme – Natwest, Royal Bank of Scotland and Halifax. All government backed lenders..
Finally, we are led to believe that despite the doors being open for business, the actual 15% government guarantee to the lender, will still not be available prior to January 2014 and this may be a slight restriction to other lenders who might have wanted to offer these mortgages initially.
Unfortunately, at this time, Help to Buy MG will not be available to those who have had any historic credit issues.
A similar proposition for those with a 10 per cent deposit is already on offer in the specialist sector. A first charge lender takes a 70 per cent loan and a second lender adds a further 20 per cent as an equity share. However, the latter has no monthly required payment, no fee after the fifth year and is only repaid once the property is sold, or client redeems early.
All of these schemes can be confusing, so always seek professional and independent advice to ensure you are getting the right deal to match your requirements.