The Help to Buy Scheme

UK Government Official Home Buying Help

 

The New “Help to Buy” Scheme

In his March 2013 budget, Chancellor George Osborne announced the “Help to Buy” scheme to boost the UK housing market by helping homebuyers. The scheme involves tow main policies: A “Shared Equity / Loans” scheme, and a “Mortgage Guarantee“ scheme.

Shared Equity / Loans

The UK Government is expanding its FirstBuy scheme to include ALL home buyers (previously it was only first time buyers). From 1/4/13, anyone with a 5% deposit will be eligible to borrow up to 20% of the value of the property they’re buying from the government. This means that the mortgage lenders only have to lend 75% of the properties value (making it less risky for them and therefore they will be more open to offering mortgages). The government lends 20%. The homebuyer has to find a 5% “deposit”.

  • This is for New Build properties only
  • It will be open for three years
  • Available for Home buyers, home movers and First time buyers. (Buy to let and second home owners are not allowed).
  • The Government will have a 20% stake in the property’s value when you sell it, or repay the loan
  • You can repay the loan at any time but have to repay 20% of the sale price when you sell
  • Buy to let and second home owners are not allowed
  • There is no limit on how much applicants earn (This is causing controversy because of concerns that the wealthy will use the scheme to their advantage).
  • Only available for property purchases below £600,000
  • It will be open for three years

 

See the UK Government’s website on these Help To Buy equity loans

The Mortgage Guarantee Scheme

Home buyers with a 5% deposit will be able to get a 95% mortgage. If the buyer defaults on the repayments the government guarantees the lender 15% of the mortgage. The aim is to encourage the lenders to give mortgages to people with low deposits – which they haven’t done since the great crash of 2008.

  • Available for Homebuyers, home movers and First time buyers. (Buy to let and second home owners are not allowed).
  • It will be open for three years
  • Available for remortgaging
  • Starts in January 2014
  • Only available for property purchases below £600,000
  • Only available for buyers with less than 20% deposit
  • Only certain lenders will be participating. (They will be paying a fee so this might be passed onto their borrowers ie customers).

See the UK Government’s website on these Help To Buy mortgage guarantees

 

Arguments for and against the “Help to Buy” scheme

The aim is to help the economy by stimulating the housing market. However true growth will only be stimulated by house building – which critics say won’t increase. However others say the fact the Shared Equity / Loans Scheme is only for new build houses will indeed lead to more house building.

A strange aspect to the scheme is that it arguably encourages the same reckless lending that got the banks into such trouble. For the state to be underwriting / insuring the banks against lending money to people who can’t afford to repay is a peculiar policy to emerge from a Conservative government.

There are fears the scheme will result in another housing price bubble. Put simply there are too few properties. Encouraging and enabling more people to buy is a classic recipe for over inflated prices. One again the current property owners will benefit at the expense of the people just starting on the property ladder

See the former/ removed Governemnt help schemes

 

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