The housing market has always been an indicator of how well (or how badly) the UK economy is doing. What was becoming increasingly obvious was that first time buyers were really struggling to get into the housing market because of the levels of deposit required and people who wanted to move up the ladder were experiencing similar problems so they just stayed put. The scenario was therefore like this: nobody moving and no new buyers entering the market. All of this spelt trouble for the UK economy and so this is why the government introduced the ‘help to buy’ scheme.
So what exactly is the ‘help to buy’ scheme?
Well, there are actually two ‘help to buy’ schemes available in England, Scotland and Wales and these are ‘Equity Loan’ and ‘Mortgage Guarantee’. Both of these schemes only require a 5% deposit and they are available to both first time buyers and existing homeowners.
Let’s take a quick look at the two different schemes:
This is available for new build homes worth up to £600K in England, £400K in Scotland and £300K in Wales.
Up to 20% of the property value will be lent to you by the government through an equity loan. This loan can be repaid during the term of the loan or when you sell the property.
This scheme means that you only need to secure a loan up to 75% of the property value to buy it which makes it much more affordable.
There are slightly different rules regarding loan fees. In Scotland there are no loan fees but in England and Wales you will have to pay loan fees after the first 5 years of owning your home.
This is available for both new homes and existing homes worth up to £600K in England, Scotland and Wales.
You’ll need to secure anything from 80% up to a 95% mortgage from a participating mortgage lender and the lender can offer you a more competitive loan to value rate because the government will provide them a guarantee of up to 15% of the value of the property.
In both schemes the only type of mortgage available is a repayment one; interest-only loans are not allowed.
The ‘help to buy’ scheme has certainly helped to kick start the housing market again and the knock-on effect to the overall UK economy has been a positive one. The scheme is due to run up to the end of 2016 so there’s still time to take advantage.