The Government’s Help to Buy Mortgage Guarantee Scheme has now ended. The scheme closed its doors 31st December 2016 having run for just over three years.
What was the Help to Buy Mortgage Guarantee scheme?
The scheme allowed lenders to purchase a mortgage guarantee from the Government where the borrower had saved a deposit of between 5% and 20%. If the borrower defaulted on payments and the lender had to sell the property, the Government guarantee would help to cover any losses. From the borrower’s perspective, the mortgage operates like a normal mortgage – but it allowed lenders to offer a better rate to borrowers with a small deposit. More than 86,000 people took advantage of the scheme while it was operational.
What help is available now?
Soaring house prices, tougher affordability checks and the need for a large deposit can all make it hard for buyers to get a mortgage – particularly first time buyers or those on a low income. Fortunately, there are other schemes available that can offer a helping hand.
Help to Buy: Equity Loan
Another Help to Buy scheme exists for prospective purchasers: the Help to Buy Equity Loan scheme. With this scheme, you’ll only need a 5% deposit to purchase a new build property. The Government lends you a further 20% of the cost of your new home, and you’ll get a 75% mortgage to cover the rest. You won’t pay any loan fees on the 20% Government loan for the first five years after your purchase.
If you’re buying a home in London, the Government will offer a loan of up to 40% – this is to reflect the higher property prices in the Capital.
Both first time buyers and current homeowners can take advantage of the scheme subject to a number of conditions. The maximum house price is £600,000, you can’t part exchange your old home and you can’t sublet the new property. You also can’t own another property if you use the scheme.
Help to Buy: ISA
The Help to Buy ISA is another helping hand for buying a property but this only applies to first time buyers. When you open this special type of ISA, you can deposit up to £1,200 straight away and after that, you can save up to £200 a month. When you’re ready to buy your home, the Government will boost your savings by 25%.
It’s important to note that this cash won’t be available until after contracts have been exchanged. If this causes a problem (for example because, like most people, you would like the 25% Government bonus to be used as part of the deposit), your lawyer can typically negotiate a smaller deposit on exchange of contracts and promise to forward the bonus when it has been received. The maximum bonus you can receive is £3,000 but note that if you and your partner are both first time buyers, you can each have an account – doubling your potential bonus to £6,000.
A new type of ISA is expected to be available to prospective homebuyers from April 2017 – the Lifetime ISA. Like the Help to Buy ISA, this offers a potential 25% Government bonus – but it is more flexible. The current details are:
- The Lifetime ISA is available to everyone aged between 18 and 40.
- You can save up to £4,000 a year – more than with the Help to Buy ISA.
- The Government bonus will be paid annually in the 2017/18 tax year, then monthly from April 2018. This means you’ll earn interest from year to year on the bonuses.
- The maximum bonus you can get is a more generous £32,000 (per person) although this would take 32 years of contributions.
- It can be used for a property worth up to £450,000.
- If it is being used for a home deposit, you must be a first time buyer and must hold the ISA for 12 months or more.
- This ISA isn’t exclusively for a home deposit – it can also be used to save for retirement and the funds will be available when you reach 60. There is no tax to pay on withdrawals.
The Treasury has confirmed that the Lifetime ISA will be launched as planned.
Shared ownership is a route to owning a property where your earnings won’t allow you to borrow a big enough sum to purchase 100% of the property price. You buy a share of your home (from 25% to 75%) and pay a low rental payment on the remaining share. You then purchase additional shares when you can afford to. You can take advantage of the scheme by contacting your local Help to Buy agent.
Mortgage companies have launched a host of new products designed to help first time buyers and those with a smaller deposit to buy a home.
Barclays’ Family Springboard Mortgage for example allows the purchase of a home worth up to £500,000 with no deposit, when a family member deposits 10% of the value into a special account for 3 years. They’ll get their money back with interest, provided that you don’t default.
The Family Building Society offer three different types of special mortgage: the Family Security Account, ‘Security Through Property’ and the Family Offset Account. These can be used in combination. They allow family members to provide security for the mortgage, or to use their savings to offset the outstanding balance, reducing the amount of interest charged.
Look out for ‘joint mortgage single owner’ type loans as well – these allow a parent or family member to join the mortgage application so that their income is considered as part of the affordability test. Their name won’t appear on the title to the property which avoids the 3% ‘second home’ stamp duty hike.