Help to Buy Mortgages
With property prices high and still moving in an upwards direction, saving a deposit for your first purchase or moving home is, to say the least, a daunting prospect.
The government has started a ascheme to help people without a large deposit to either buy their first property or move to a new one.
Do you qualify?
To qualify for the Help to Buy scheme:
- You must have a deposit of at least 5%.
- You must be looking to buy a property for no more than £600,000.
- The property you purchase must be the property in which you intend to live. (You cannot but to let out or used as a second residence.
There are two parts to the scheme – mortgage guarantees and equity loans, which are explained in a little more detail below.
Help to Buy – Mortgage Guarantees
Most of the biggest UK mortgage lenders and a few of the smaller ones haved signed up to offer Help to Buy products.
This is how they work –
- You put down a deposit of at least 5%
- You can borrow up to 95% of the purchase price from your chosen lender
- The government guarantees the borrowing over 80% of the property value
- This means that if you took out an 85% mortgage, the government would guarantee to pay your mortgage lender up to 10% of it’s value should you default on the loan.
To all intents and purposes, this mortgage is no different to you as the borrower from any other mortgage. You still have to make your repayments and you could still face repossession, should you not keep up repayments.
For the lender however, the loan carries less risk.
Help to Buy – Equity Loans
An equity loan is only available to those who wish to buy a newly built property.
- The government loans up to 20% as an equity loan
- You need a minimum deposit of 5%
- You will need to get a mortgage of 75% of the value of the property
You will, this way, hopefully get a better mortgage rate from your lender as you will have put a larger amount down.
Your equity loan is free for the first 5 years. From year 6 onwards you will pay an administration fee of 1.75% of the loan. That fee will increase each year by any increase in the RPI (Retail Prices Index) + 1%.
You must note that you will be paying this in addition to your mortgage and the equity loan does not decrease. You have to repay the equity loan in full at the end of term or when you sell the property. You will repay the market value of the loan at the time, so if you took a 20% equity loan you will pay 20% of what the property is worth when you sell it. If, however, your property decreases in value you could pay back less than you borrowed.