Yesterday The Chancellor announced canges to the schemes available to help buyers, this can be seen as an extension of the current FirstBuy and NewBuy schemes under the new heading ‘Help to Buy’.

Andrew Fagg of Davenport Financial Management describes the two schemes:

Help to Buy

The Chancellor confirmed a Help to Buy package consisting of an extended shared equity scheme and a mortgage guarantee scheme.

In announcing the initiative, Mr Osborne said: “The deposits demanded for a mortgage these days have put home ownership beyond the great majority who cannot turn to their parents for a contribution.  That’s not just a blow to the most human of aspirations – it’s set back social mobility and it’s been hard for the construction industry. This Budget proposes to put that right – and put it right in a dramatic way.”

Help to Buy – equity loan

This expands the Government’s First Buy scheme (in which Nationwide already plays an important role) but is now available to all, not just first time buyers. The features include:

  • New build only.
  • A minimum deposit of 5% required.
  • Government will lend up to 20% of the value of a property through an equity loan (this can be repaid at any time), meaning that home buyers will only need to secure a 75% mortgage.
  • Scheme will be available from 1 April 2013 and will run for three years, providing £3.5bn additional investment. The Financial Policy Committee will have to grant permission for this to be extended.
  • A maximum home purchase of £600 000 is permitted.

 

Help to Buy – mortgage guarantee

The most significant announcement is a Government-backed guarantee scheme aimed at widening the availability of low deposit mortgages. While the detail is still yet to be developed, the scheme looks to replicate a similar approach which has operated in Canada since the 1930s. The scheme will act as a Government backed mortgage insurance scheme, protecting lenders from losses between 95% and 80% LTVs. The cover would be provided by the Government. Key features include:

  • Available for new build and existing homes.
  • A deposit of 5% required.
  • Available to existing home owners and first-time buyers
  • Customers still need to secure a mortgage for a purchase, satisfying responsible lending criteria.
  • Scheme will run from January 2014 for three years.
  • A maximum home purchase of £600 000 is permitted.

 

For further information on how these schemes might help you or for mortgage advice in general, please contact Andrew Fagg on 07720 353866.