Cast your minds back to 2013. You may remember the launch of an exciting new government scheme that was designed to help first-time buyers and home-movers with limited equity. We are of course referring to the much-lauded Help to Buy scheme, which has successfully brought homeownership to a growing number of people across the UK.
Well, it’s almost two years later and the government is still keen to stimulate the property market and create more opportunities for mortgage applicants. With billions of pounds currently set aside to help first-time buyers get onto the property ladder, or help existing homeowners move into bigger and better homes, now is the time to get in touch with your local expert and find out how Help to Buy could benefit you in 2015.
How Help to Buy works: HTB1 and HTB2
There are two different elements to the Help to Buy scheme. Both will require the borrower to have a 5% deposit, but there are many differences between the two that you will need to know about. That’s why we’ve broken the most important pieces of information down (such as benefits, stipulations and background info) in order to help you to understand how they work and which scheme is right for you.
HTB1 – Equity loan
The first part of Help to Buy, or HTB1, was launched at the start of April 2013 (available until 2020) and is an equity loan scheme. This means that the government will lend up to 20% of the property value, which borrowers can choose to repay at any time without penalty. You can pay back either 10% or 20% of the total amount, so long as the loan is worth at least 10% of the value of your home, and there is no maximum income requirement to qualify.
Why such a massive boost to home buyers
The equity loan offered by HTB1 offers buyers two major benefits. The first is the interest-free nature of the government loan, which is interest-free for the first five years. After this time an annual fee of 1.75% will be charged, climbing at a rate of 1% over inflation each year.
Another benefit is that with a combined deposit of up to 25%, borrowers will then have access to more attractive/cost-effective mortgage rates from lenders participating in the scheme – allowing buyers to stretch their affordability and purchase a property they can happily stay in for longer. So if you’re looking to purchase a long-term home, perhaps to accommodate a growing family, then an equity loan offered by HTB1 is definitely worth considering.
What are the stipulations?
We’ve already mentioned the terms of repaying the equity loan during/once the five-year interest-free period is over. When it comes to selling your house, however, the government, at the property’s current value, will reclaim an unpaid equity loan. But that’s to be expected, as they will technically own a small percentage of your home until that debt has been paid.
Oh yes, and unless you’re planning on purchasing a new-build home you won’t be able to apply for a HTB1 equity loan. Property prices under this scheme are also capped at £600,000. So bear that in mind.
Another important thing to note is that the property you’re looking to purchase under the HTB1 scheme must be your only residency. This initiative was created to help make it easier for more people to get onto the property ladder, after all, which also means you cannot use Help to Buy to purchase a buy-to-let property.
HTB2 – Mortgage guarantee
The second part, HTB2, is a ‘mortgage guarantee’ designed to encourage lenders to lend to more home buyers and was introduced in October last year (available until December 31 2016). It will give first-time buyers and second steppers who have small deposits an opportunity to buy either a new-build or existing property – with the government providing mortgage lenders a guarantee of 15% of the property value (in addition to the 5% already raised by the borrower).
Why such a massive boost to home buyers
Advancing money to borrowers, particularly first-time buyers wanting a big mortgage, can be extremely worrisome to many banks and building societies. But the 15% guarantee is insurance to lenders who might otherwise still be cautious and will certainly make things easier for buyers looking to get a foot on the property ladder. The government is basically saying “we’ve got your back on this one”, so it’s definitely worth checking it out if you think you might struggle to convince lenders.
What are the stipulations?
As with HTB1, property prices under this scheme are capped at £600,000 and you won’t be able to apply if the property will be your second home or if you’re planning on renting out the one you are buying. Also any other scheme, such as shared ownership, cannot be used in conjunction with Help to Buy.
As with any other type of mortgage application, borrowers applying for a mortgage under the Help to Buy scheme will be subjected to the same kind of checks to ensure they meet the lender’s requirements. This means providing a credit score that demonstrates you are able to afford the mortgage repayments.
For more information about Help to Buy, contact us or click the button below and one of our team will call you back and discuss your options.
