Next week the next phase of the government’s Help to Buy scheme will launch.
The new Mortgage Guarantee phase of Help to Buy has generated a lot of interest from potential home movers, but we’ve also been inundated with requests for more detail.
Miles Shipside, Rightmove director and housing market analyst, tackles some of the most commonly occurring questions – including some common misconceptions.
For more a rundown of the details of the scheme, visit Rightmove’s Help to Buy page.
Q. Is the scheme for new-build homes only?
A. No. The new Mortgage Guarantee scheme is for new build and existing property up to £600,000. The Equity Loan scheme, which has been running since April, is for new-build properties only.
Q. Is it just for first-time buyers?
A. No, the Mortgage Guarantee scheme is for any buyer as long as it is a residential repayment mortgage, not a buy-to-let.
Q. Is the scheme for the whole of the UK?
A. Yes, the Mortgage Guarantee phase of Help to Buy is available across the UK. The equity loan phase of Help to Buy is available in England and is for new-build properties only up to £600,000. Scotland has just launched a new build-only Equity Loan scheme called Help to Buy (Scotland), for properties up to £400,000. Wales has yet to formally announce an Equity Loan scheme but is expected to do so soon.
Q. Are we creating an artificial market or a ‘price bubble’? E.g. will I be in negative equity in 5 years’ time if I take up the scheme?
A. The property market is exactly that – a market. Property prices can go up and down depending on a number of factors, including the balance between supply and demand. It is worth remembering that prices are lower today in some parts of the country compared to five years ago, part influenced by the difficulty of buyers obtaining mortgages. Help to Buy will increase demand for property, though crucially, it is not just for first-time buyers and so as existing home owners move they will have to sell helping to increase property supply. Help to Buy is scheduled to last for three years, the thinking being the mortgage market will be functioning better when it finishes, enabling a smooth transition.
Q. I don’t need or want a government-backed mortgage, how will this affect me?
A. It is likely that many of the mortgage products for those with a deposit of 10% or more will not be assisted by the governments’ Help to Buy scheme. However, the improved lending environment should mean more competitive rates for those with 10% to 20% deposit benefitting all buyers, whether in the scheme or not. For those with 5% deposit this government underwritten scheme is the only real option.
Q. Will I be dependent on the state if I take out a Help to Buy mortgage? Can they change the rules?
A. A Help to Buy Mortgage Guarantee is essentially the same as a traditional 95% repayment mortgage, with all the usual terms and conditions between you and the lender. However, as part of the Mortgage Guarantee agreement between the government and the lender, the lender is not able to offer a Help to Buy assisted mortgage in some circumstances, such as buy-to-let mortgages. In reality you may not even spot it is a Help to Buy mortgage, other than being a 95% loan to value. Equity Loan Help to Buy mortgages on new build properties obviously have more rules.
Q. Is this phase of Help to Buy (Mortgage Guarantee) just an extension of the Equity Loan scheme to existing properties?
A. No. Phase two is a Mortgage Guarantee scheme. It involves a traditional repayment mortgage with a loan to value of up to 95% and is available on both new build and existing property. There is no equity loan. A buyer with a 5% deposit should ask a mortgage advisor to explore the possibility of a Help to Buy backed mortgage for the remaining 95%. Phase one (Equity Loan) is available on new build properties only and will run alongside the Mortgage Guarantee scheme.
The Help to Buy schemes are subject to terms and conditions. Please check eligibility criteria with your mortgage advisor or IFA.