Buying a home is one of the most significant financial events undertaken in your lifetime. And since you probably only go through the process a few times, it can be an intimidating prospect. First time buyers experience unique challenges, facing mortgage considerations and other important details without personal experience to guide them. Fortunately, however, there are resources and programs available to help take the mystery out of real estate transactions and give house shoppers the tools they need to navigate the market.
Help to Buy Mortgage Guarantee Scheme
In addition to informational resources and guidance, the Government also furnishes financial guarantees for some borrowers. The Help to Buy mortgage guarantee scheme enables buyers to secure homes valued below £600,000 with a deposit of as little as 5pc. Mortgages obtained under the scheme operate in the same way other loans do, expect Help to Buy borrowers have the option of adding a Government-backed guarantee to their mortgages.
The extra security furnished by Government assurances enables lenders to extend more credit to buyers with low deposits. These high loan-to-value mortgages help first-time buyers, as well as those wishing to move up in home size or value. The loans can be applied to new or existing homes.
Help to Buy Equity Loan – This scheme is reserved for newly built homes in England. Under the program, borrowers receive a loan worth up to 20% of the cost of a new build. A 5% deposit and a mortgage worth 75% of the home’s value account for the balance of building costs. The loan provided by the Government is not subject to loan fees for the first five years of ownership, giving new home builders time to recover from their initial investments.
Help to Buy Mortgage Guarantee – On the surface, mortgages guaranteed by the Help to Buy scheme look just like other conventional loans. However, a large share of the funding is backed by Government assurances. As a result, lenders are able to extend deals with deposits as low as 5%. The guarantee is made available to qualified applicants across the UK.
The Help to Buy scheme is designed to make home buys affordable for certain UK residents, so those who already own property are restricted from participating. The guarantees do not apply to properties for let. And companies are not eligible to apply – though joint personal ownership is permitted. There are no additional fees paid to the Government for Help to Buy guarantees, but they must be attached to repayment mortgages, rather than interest-only loans.
Should Help to Buy be Extended?
The Help to Buy mortgage guarantee scheme is set to end in 2016, prompting analysts to question its impact. According to the Intermediary Mortgage Lenders Association (IMLA), many participating members within the industry see potential challenges arising as Help to Buy phases out. Unless it is replaced by a more permanent scheme, access to home ownership could suffer.
Launched to jump-start the ailing lending industry, Help to Buy has become nearly indispensable. The mortgage market has recovered among buyers with low deposits, due directly to Help to Buy assistance. A long-term measure easing pressure on lenders would allow them to continue making the types of loans guaranteed by the Help to Buy scheme. Without such relief, competition among lenders may drop and the first-time home buyer market could quickly erode.
The Government has committed to extending the scheme until 2020, for new building only. Some industry insiders feel it is risky to count on continued recovery in the housing sector, without the benefit of Help to Buy. Currently, qualified borrowers with only 5% deposit are routinely landing mortgage interest rates below 4%. Without guarantees, these would-be home owners may be left out in the cold.