Q. I have heard that the government have recently introduced some new schemes to incentivise people like me step onto the property ladder? I understand there are two strands to this but am a bit confused how it all works, can you simplify and break it down for me so I can get to grips with it and see if it will work for me?
A. The latest housing initiative from the Government was recently unveiled, offering support for aspiring homebuyers and sparking hopes for better mortgage rates and availability. The Help to Buy scheme is seemingly bigger and bolder than previous proposals to get the housing market moving. There are two strands to Help to Buy: equity loans worth up to 20 per cent of the value of a new home, which was launched on the 1st of April and will run for three years, and mortgage guarantees for people with smaller deposits, which won’t be available until next January 2014. Help to Buy is an expansion of the existing, more restrictive First Buy scheme. This time financial support is available to both existing homeowners and first-time buyers like you, with a more generous maximum property price of £600,000 and no cap on the amount homebuyers can earn to be eligible. In a nutshell this means that Lenders are able to reduce the risk they are perceived to take and buyers have the benefit of reduced interest rates through borrowing at 75% or below, as opposed to a 95% loan with considerably higher interest rates. Under the equity loan scheme, homebuyers need to raise only a 5 per cent deposit to buy a new property worth up to £600,000. A fifth of the property price will then be met by a government loan which is interest-free for the first five years. From year six a fee of 1.75 per cent is payable, rising annually by the retail prices index plus 1 per cent. The loan can be repaid at any time during the term of the mortgage, or upon the sale of the property. The second strand of Help to Buy is the mortgage guarantee which covers existing homes as well as new-builds worth up to £600,000. Once again, homebuyers can secure a mortgage with a 5 per cent deposit, while the Government guarantees part of the loan to encourage lenders to relax their purse strings on low-deposit mortgages. This limits the risk associated with high loan-to-value (LTV) lending, where first-timers typically operate, but also second steppers struggling to upgrade because they don’t have enough equity in their properties to remortgage. The finer details of the mortgage support scheme have yet to be ironed out, and one key issue will be whether there is enough of an incentive to persuade lenders to take advantage of the guarantee. However, the Government has promised to make £12bn of guarantees available to lenders, running for three years from January 2014, supporting an estimated £130bn of high-LTV mortgages. There are other options worth looking into for buyers with modest deposits. If your family is willing to help, there are a number of guarantor schemes that require only a 5%, including the Woolwich Family Springboard mortgage. This provides first-time buyers with a three-year fixed rate on the proviso that the applicant’s family opens a linked savings account with 10% of the purchase price.