The extension of the Government’s Help to Buy scheme is designed to help those who want to get onto (or move up) the property market but are unable to raise the required deposit to buy their home.
How Does It Work?
The Government will guarantee up to 15% of the value of a property, encouraging lenders to make larger loan-to-value mortgages available.
The guarantee is made to the lender rather than the buyer, and it reduces the loss that a lender would make if a buyer defaulted on their mortgage payments.
It is estimated that the average deposit required for a property could fall by as much as three quarters as a result of the extension.
Homebuyers will still apply to a participating bank or building society as normal and applicants will still be subject to a lender’s standard affordability and credit checks.
The Second Phase: The Mechanics
The first phase of the scheme was launched in April, and was aimed at buyers of new homes worth up to £600,000.
The extension of the scheme means that the guarantee now applies to existing homes as well as new homes, and to movers as well as first-time buyers.
It is not an infinite source of funds, however. The Government has allocated £12 billion over three years to guarantee homes worth £130 billion. This means that, at average prices of around £220,000, the 15% guarantee would support 363,500 home purchases.
The second phase of Help to Buy was brought forward by three months to October 2013 to allow aspiring homebuyers to get onto the housing ladder more quickly.
Enquiries have now opened for the scheme, but loans will not be advanced until 1st January 2014.
Maximum property value will be £600,000 (max. guarantee of £90,000).
Available to new buyers or existing homeowners.
Not available for second homes or buy-to-let properties.
As always, we recommend that you seek professional advice if you are unsure which type of mortgage is right for you. All of the information provided above is for use as an overview only and should not be the basis for your mortgage decision.