The Government has introduced a new scheme aimed at helping people purchase their own home.
The Help to Buy – Mortgage Guarantee scheme, due to be introduced on 1 January 2014, will run alongside the current Help to Buy – Equity Loan scheme, which assists those wishing to purchase a newly built home.
Both schemes apply to the purchase of property up to the value of £600,000 and are only available to those who live in England. Different schemes apply in Wales and Scotland.
Help to Buy – Mortgage Guarantee
Although the new scheme is set to commence in January 2014, applications are now being accepted, so properties purchased between now and January that are the subject of successful applications will be within the scheme.
The scheme applies to any property valued at £600,000 or less which is not a shared ownership or shared equity property, a second home, or rented out.
In order to qualify for the scheme, you must be able to put down at least a 5 per cent deposit. The main purpose of the scheme is to reduce the risk to the lender, so that a substantial deposit will not be required. Currently, lenders require deposits of up to 20 per cent, which means that only those with substantial savings can contemplate entering the housing market.
Under the Mortgage Guarantee scheme, the Government will guarantee the mortgage up to 15 per cent of the value of the property. Interest-only mortgages are not allowed under the scheme.
Help to Buy – Equity Loan
The Equity Loan scheme is available to anyone who can put down a 5 per cent deposit and is able to secure mortgage finance. It applies where the property being purchased is new build and is worth up to £600,000. The property must also be built by a registered ‘Help to Buy’ builder.
The Government will provide up to 20 per cent of the purchase price by way of a loan, which reduces the risk to the commercial lender. When the property is sold, the loan from the Government is repaid. The Government will also take 20 per cent of any profit on the sale. For example, if a property is sold for £40,000 more than the purchase price, the Government will receive £8,000 with the balance of the profit (£32,000) going to the homeowner.
The loan can be repaid without the necessity to sell your home.
No fees are charged on the loan during the first five years. In year six, a fee of 1.75 per cent of the loan is charged. After that, the fee increases annually, based on the Retail Prices Index plus 1 per cent, the applicable rate being decided annually in September.
The Mortgage Guarantee scheme ends on 31 March 2016.
In addition, there are two further schemes aimed at helping people get a foot on the property ladder.
Shared ownership schemes are made available by housing associations. They allow tenants to buy a share in their rented property of between 25 per cent and 75 per cent of its value. They pay rent on the proportion not owned.
There is a similar scheme for people aged 55 or more.
You can buy more shares in the property if you wish. The price payable will depend on the current market value of the property. Once you own 100 per cent of the property, you can sell it yourself, but the housing association will have the right of first refusal for 21 years from the date when you own the property outright.
NewBuy is a scheme which allows people to purchase a newly built property with a 5 per cent deposit. The property must cost £500,000 or less and be built by a builder who is taking part in the scheme. To take part, you do not need to be a first-time buyer but the property must be your main home and owned fully by you.