The Help to Buy scheme - a government initiative designed to help
struggling home-buyers get onto or move up the property ladder - has two
phases. The first, a £3.5bn scheme aimed at buyers of newly-built
properties worth up to £600,000, was introduced in April and has already
been taken up by about 7,000 people. The second phase, which applies to
new or second-hand properties up to the same value, starts accepting
applications today. David Cameron believes the initiative is essential
because "the mortgage market today isn't working". Critics argue that it
may trigger a housing bubble, particularly in the over-heated London
market. But what is the Help to Buy scheme and who will be eligible?
How does phase one of Help to Buy work?
The first phase of Help to Buy applies only to new homes and first-time buyers. Borrowers need to raise a 5 per cent deposit on the property and can then borrow a further 20 per cent from the government, initially interest free, up to a maximum of £120,000. After five years, what remains of the loan will attract interest at 1.75 per cent per year. The rate will increasing each year by 1 per cent above inflation. The £3.5bn scheme, which will be administered by home builders will support about 74,000 home purchases.
What happens if you can't pay your mortgage?
If you take out an equity loan and find you can't pay your mortgage, you'll probably have to sell the property or the bank will repossess it and sell it for you. Citywire points out that the 20 per cent equity loan will still need to be paid back to the government.
And phase two?
Phase two of Help to Buy applies to home movers as well as first-time buyers and second-hand houses as well as new ones. In this phase, the government does not loan money to the homebuyer but provides a guarantee to the lender for up to 15 per cent of the loan. That will allow borrowers with only a 5 per cent deposits a much wider choice of mortgage deals. As in phase one, there is a limit of £600,000 on the value of the property.
Why do lenders need loan guarantees?
The government guarantee reduces the bank's losses if a borrower defaults on his or her payments. "That allows them to offer cheaper mortgages to would-be home-buyers with small deposits, who are currently locked out of the market," explains the Daily Telegraph.
Why has the second phase been brought forward?
The second phase was due to start in January. Asked why the government had brought the start date forward three months, David Cameron said: "I am impatient to help young people get on the housing ladder.
Does that mean I can buy a new home this week?
No. Lenders won't be able to get loan guarantees from the government until 1 January, 2014. That means you won't be able to use the second phase of Help to Buy for home purchases that complete before 2014.
Which banks will offer the 95 per cent mortgages?
The scheme will initially be available from the Nat West, RBS and Halifax, but the government says other banks and building societies are expected to sign up over time.
Are there an unlimited number of 95 per cent loans on offer?
No. The government is making £12bn available in loan guarantees, enough to fund mortgages worth a total of £130bn. The scheme will remain open for three years. Mortgage brokers fear "a stampede of new applications" for loans when the scheme opens, reports The Guardian.
What interest rates will borrowers have to pay?
Citywire says there "could be a catch" in the mortgage rates lenders offer borrowers in the scheme. In the mortgage market those with a large deposit are often able to negotiate a lower interest rate. "It could be that a 5 per cent deposit mortgage incurs a high interest rate particularly if banks are told to hold more capital to cover the risky loan," says Citywire. Banks will also have to pay a fee of 0.9 per cent of the loan value to take part in the scheme. They are likely to recoup that from customers in the form of higher interest rates.
Who is excluded from Help to Buy?
The new loans aren't means tested, but they won't be available to people wanting to buy second homes or buy-to-let properties. Prospective borrowers will be required to sign documents confirming they are first home buyers or, if they already own a home, that they are in the process of selling it.
What do supporters of the scheme say?
The incoming chief executive of the state-backed RBS, Ross McEwan, told The Guardian that his bank was backing the scheme because: "We are committed to helping as many people as possible across Britain to get on with their lives, to buy their first home, to move to a bigger house as their family grows."
What do critics say?
Business Secretary Vince Cable says the scheme may trigger an unsustainable boom in house prices, particularly in the south-east of England. "I am worried of the danger of getting into another housing bubble," Cable told the BBC. ·
How does phase one of Help to Buy work?
The first phase of Help to Buy applies only to new homes and first-time buyers. Borrowers need to raise a 5 per cent deposit on the property and can then borrow a further 20 per cent from the government, initially interest free, up to a maximum of £120,000. After five years, what remains of the loan will attract interest at 1.75 per cent per year. The rate will increasing each year by 1 per cent above inflation. The £3.5bn scheme, which will be administered by home builders will support about 74,000 home purchases.
What happens if you can't pay your mortgage?
If you take out an equity loan and find you can't pay your mortgage, you'll probably have to sell the property or the bank will repossess it and sell it for you. Citywire points out that the 20 per cent equity loan will still need to be paid back to the government.
And phase two?
Phase two of Help to Buy applies to home movers as well as first-time buyers and second-hand houses as well as new ones. In this phase, the government does not loan money to the homebuyer but provides a guarantee to the lender for up to 15 per cent of the loan. That will allow borrowers with only a 5 per cent deposits a much wider choice of mortgage deals. As in phase one, there is a limit of £600,000 on the value of the property.
Why do lenders need loan guarantees?
The government guarantee reduces the bank's losses if a borrower defaults on his or her payments. "That allows them to offer cheaper mortgages to would-be home-buyers with small deposits, who are currently locked out of the market," explains the Daily Telegraph.
Why has the second phase been brought forward?
The second phase was due to start in January. Asked why the government had brought the start date forward three months, David Cameron said: "I am impatient to help young people get on the housing ladder.
Does that mean I can buy a new home this week?
No. Lenders won't be able to get loan guarantees from the government until 1 January, 2014. That means you won't be able to use the second phase of Help to Buy for home purchases that complete before 2014.
Which banks will offer the 95 per cent mortgages?
The scheme will initially be available from the Nat West, RBS and Halifax, but the government says other banks and building societies are expected to sign up over time.
Are there an unlimited number of 95 per cent loans on offer?
No. The government is making £12bn available in loan guarantees, enough to fund mortgages worth a total of £130bn. The scheme will remain open for three years. Mortgage brokers fear "a stampede of new applications" for loans when the scheme opens, reports The Guardian.
What interest rates will borrowers have to pay?
Citywire says there "could be a catch" in the mortgage rates lenders offer borrowers in the scheme. In the mortgage market those with a large deposit are often able to negotiate a lower interest rate. "It could be that a 5 per cent deposit mortgage incurs a high interest rate particularly if banks are told to hold more capital to cover the risky loan," says Citywire. Banks will also have to pay a fee of 0.9 per cent of the loan value to take part in the scheme. They are likely to recoup that from customers in the form of higher interest rates.
Who is excluded from Help to Buy?
The new loans aren't means tested, but they won't be available to people wanting to buy second homes or buy-to-let properties. Prospective borrowers will be required to sign documents confirming they are first home buyers or, if they already own a home, that they are in the process of selling it.
What do supporters of the scheme say?
The incoming chief executive of the state-backed RBS, Ross McEwan, told The Guardian that his bank was backing the scheme because: "We are committed to helping as many people as possible across Britain to get on with their lives, to buy their first home, to move to a bigger house as their family grows."
What do critics say?
Business Secretary Vince Cable says the scheme may trigger an unsustainable boom in house prices, particularly in the south-east of England. "I am worried of the danger of getting into another housing bubble," Cable told the BBC. ·
