The Budget – Help to Buy

The Government announced in yesterday’s budget a new two tiered Help to Buy scheme offering an Equity Loan and Mortgage Guarantee scheme to help tackle the problems in the housing market.

Help is available to those wanting to move up the housing ladder as well as first-time buyers.  The scheme has no income caps but the buyer will have to pass lenders’ credit and affordability tests and have a capital repayment mortgage.

Equity Loan Scheme

This is available from 1 April 2013 for 3 years.  The government will provide buyers with an equity loan of up to 20% of the value of a new build property.  The loan will be interest free for 5 yeas with interest becoming payable in year 6.  This loan will be repaid at any time within the term of the mortgage (up to 25 years), or on the sale of the property.

Mortgage Guarantee

This is available from 1 January 2014 for 3 years.  This scheme is not restricted to those buying a new residential property.  The aim is for lenders to offer a greater number of mortgages to buyers with small deposits.

The government will not be guaranteeing the borrower’s mortgage payments, they will be providing lenders with the option to purchase a guarantee on the high loan-to-value portion of the mortgage, the government will charge a commercial fee.

If the borrower’s property is repossessed, the government will cover a proportion of those losses suffered by the lenders.  This guarantee is valid for up to 7 years after the grant of the mortgage.  Further details will follow later this year.