Help To Buy Scheme

The Help to Buy scheme comes in two forms:

-    Offering buyers an interest-free loan from the government;
-    The Government providing a guarantee to underpin a borrower's mortgage

Both will be available for homes worth up to £600,000 and there will be no restriction on how much applicants need to earn in order to qualify.


Loan Scheme
An interest-free loan will be offered from 1 April 2013 and is limited to those who want to buy a new-build property. Very similar to the existing First Buy scheme, but it is also available to existing homeowners in addition to first-time buyers

Borrowers will need to raise a deposit of 5%, but can borrow a further 20% on an interest-free basis from the government. The state-backed loan must be repaid when the property is sold. It can be repaid earlier, but only if the mortgage is paid off at the same time. After five years it will attract an interest fee of 1.75%, which will rise annually by the RPI rate of inflation plus 1%.

Guarantee Scheme
This will be available from January 2014 and will help you buy a new or existing property. Again, you will need to raise a deposit of at least 5% but no more than 20%. 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.

As the policy does not come in until next year there is inevitably a lack of clarity at the moment, and it is currently unclear (amongst other things) who will qualify for the guarantee and how much lenders will be charged to use it.

Mortgages
These schemes should help people for whom the only thing standing between them and a mortgage is a lack of deposit. If you have other issues – a poor credit history or you are recently self-employed, for example – then this will make no difference. Lenders will still be able to choose who they want to lend to. Additionally, the government has left it to lenders to set their own rates on the mortgages they offer through Help to Buy, and it is currently not clear how much they will charge.

Tim Butcher

Published on 28/03/2013