Help to Buy Schemes; the property market is moving

Written by: Keoghs Solicitors

Date: 8th October 2013

It was announced at last weeks’ Conservative party conference in Manchester, that the second phase of the Government’s  ‘Help to Buy’ will be available three months early, on all home purchases in the UK up to a value of £600,000.

The first phase of the Help to Buy scheme was launched in April 2013 enabling home buyers  to access equity loans of up to 20{976169db6f22d9550bd58349ed6caacdc3c11799e572ef8ddb13772e22ce1187} of the price of new build homes only (with a purchase price of up to £600,000).

Help to Buy is now made up of two schemes:

Phase I – “equity loan” where the government will loan you up to 20{976169db6f22d9550bd58349ed6caacdc3c11799e572ef8ddb13772e22ce1187} of the value of your new build home; and;

Phase II – “mortgage guarantee” where lenders will be incentivised to make more mortgages available for people with small deposits (5{976169db6f22d9550bd58349ed6caacdc3c11799e572ef8ddb13772e22ce1187}.).

Under Phase II of the Help to Buy scheme: mortgage guarantee, the government will provide guarantees to lenders on a proportion of the mortgage. If a borrower’s property is repossessed, the government will cover a proportion of the losses suffered by lenders.

The mortgage guarantee will be available on all residential properties in the UK, both new-build and existing properties, up to a value of £600,000 but will only be available to buyers with deposits between 5{976169db6f22d9550bd58349ed6caacdc3c11799e572ef8ddb13772e22ce1187} and 20{976169db6f22d9550bd58349ed6caacdc3c11799e572ef8ddb13772e22ce1187}. Mortgages are already widely available for those with a deposit of 20{976169db6f22d9550bd58349ed6caacdc3c11799e572ef8ddb13772e22ce1187} or more.

Interest rates on products supported by Help to Buy: mortgage guarantee will be set by lenders. The government will not be involved in setting the price which is a commercial decision for individual lenders.

For both schemes, borrowers will need to meet appropriate tests to ensure they can pay back the mortgage, as well as passing their chosen lender’s credit and affordability checks.

Both schemes are available to home movers as well as first-time-buyers, subject to meeting the relevant eligibility criteria.

Phase I – Help to Buy – Equity Loan Scheme ñ

Equity loan for newly built homes – available since 1 April 2013. If you have a deposit of 5{976169db6f22d9550bd58349ed6caacdc3c11799e572ef8ddb13772e22ce1187} you can apply for a loan of up to 20{976169db6f22d9550bd58349ed6caacdc3c11799e572ef8ddb13772e22ce1187} of the value of the home from the government. The loan is then interest free for the first five years.

The Help to Buy (equity loan scheme) provides buyers with an equity loan of up to 20{976169db6f22d9550bd58349ed6caacdc3c11799e572ef8ddb13772e22ce1187} of the value of a new build, which is interest free for the first five years.

After five years, then an interest fee is payable which will rise in line with inflation.  As at October 2013, this figure is 1.75{976169db6f22d9550bd58349ed6caacdc3c11799e572ef8ddb13772e22ce1187} rising by RPI inflation plus 1{976169db6f22d9550bd58349ed6caacdc3c11799e572ef8ddb13772e22ce1187}.

The equity loan can be repaid at any time within 25 years (or the term of the mortgage), or on sale of the property.

The scheme cannot be used in conjunction with Buy to Let purchases which falls outside the reasons why the scheme has been created.

Phase II – Help to Buy – Mortgage Guarantee

Mortgage guarantee for all properties – funds will be made available from 1 January 2014, but applications can be made from 7 October 2013.

If you have a deposit of between 5{976169db6f22d9550bd58349ed6caacdc3c11799e572ef8ddb13772e22ce1187}-20{976169db6f22d9550bd58349ed6caacdc3c11799e572ef8ddb13772e22ce1187} the government can offer to guarantee part of your mortgage. This is to help you get access to mortgages with lower interest rates, normally only available to those with bigger deposits.

This scheme is available to first time buyers and people moving home on properties worth up to £600,000.

Under the second phase of the scheme, the government will guarantee 15{976169db6f22d9550bd58349ed6caacdc3c11799e572ef8ddb13772e22ce1187} of a mortgage, allowing the purchaser to buy properties with just a 5{976169db6f22d9550bd58349ed6caacdc3c11799e572ef8ddb13772e22ce1187} deposit (95{976169db6f22d9550bd58349ed6caacdc3c11799e572ef8ddb13772e22ce1187} LTV) on the property of their choice.

Applications for loans from the scheme will now be brought forward to the week beginning 7 October but the loans will not be paid out until 1 January 2014.

What happens when you want to move?

If you purchase a property under the Help to Buy scheme – equity loan, then you can sell the property at any time, paying back the money loaned to you under the scheme.  Your solicitor will contact the scheme to obtain a settlement figure as part of the residential conveyancing process and will provide the scheme with details of the sale itself.

Once your sale has completed the loan will be paid off from the proceeds automatically and your solicitor will arrange for the scheme’s interest in your property to be removed from the Land Registry.

If you purchased a property under the Help to Buy scheme – mortgage guarantee, then your solicitor will follow the normal conveyancing process without any additional issues.

How we can help?

At Keoghs, Nicholls, Lindsell & Harris we appreciate that buying a home is the largest financial commitment we make during a lifetime.  If you are contemplating buying a new home under either of the Help to Buy schemes, then it is vital that you speak to our team of residential conveyancing experts to discuss your rights and responsibilities.

There are bound to be questions that you wish to ask. Our team of Residential Conveyancing experts are here to help.   We can help and advise you on all aspects of your purchase and/or sale, your contract and point out any key or important clauses that you need to be aware of.  We also offer very competitive fixed rates so there will be no hidden charges.