11/04/2013

Commercial Property e-Brief – Help to Buy Scheme

On the 20 March 2013 George Osborne delivered his budget to Parliament.  The budget contained a £5.4 billion package of financial support to tackle long-term problems in the housing market including the launch of the new Help to Buy scheme.  The Help to Buy scheme provides two methods of assistance for those who want to get onto, or move up, the housing ladder. It also aims to provide a boost for house builders by stimulating demand.

WHO IS HELP TO BUY AVAILABLE TO?

Prior to the launch of Help to Buy, Government funded assistance for new buyers was limited to first-time buyers with a family income of below £60,000. However, the new Help to Buy scheme will be available to anyone who wants to buy a home worth up to £600,000 regardless of their income. Consequently, it is hoped that the new scheme will be more widely used. The Help to Buy scheme assists house buyers in one of two ways which are described below:

TYPE 1: EQUITY LOAN

This assistance is only available to buyers of new build properties.  It is designed to assist those who are struggling to finance a full 10% deposit and are therefore unable to obtain a mortgage or a mortgage at an affordable rate.  It is hoped that one of the main beneficiaries of this assistance could be the young.

THE FACTS

  • Only available on new build properties.
  • The Government will lend up to 20% of the value of the property through an equity loan which can be repaid at any time within the term of the mortgage or on the sale of the property.
  • Available now (launched 1 April 2013).
  • The loan is interest free for the first five years but from year six a fee of 1.75% is payable on the loan, which rises annually in line with the Retail Price Index plus 1%.
  • Not available on buy to let properties but it has not yet been made clear whether it will be available for people buying a second home and who rent out their first property.

TYPE 2: MORTGAGE GUARANTEE

This is available to any purchaser of a new or existing home who has a minimum of a 5% deposit.  Again, the assistance is designed to assist those who would otherwise struggle to obtain a mortgage.

THE FACTS

  • The Government will provide guarantees to lenders on a proportion of the mortgage. If a borrower’s property is repossessed, the Government will cover a proportion of the losses suffered by lenders. It is not a guarantee of mortgage repayments.
  • Borrowers will still have to pass a strict lending test to get a mortgage.
  • Not available until January 2014.
  • Full details are to be released at a later date.

SUMMARY

The Chancellor hopes that the Help to Buy scheme will stimulate housing demand, particularly for new homes, and this should give a much needed shot in the arm to the house building sector.  The success of the scheme will initially be judged on the uptake of loans or guarantees by buyers and whether enough lenders will agree to take part.  However, there are concerns that if the scheme runs for a limited period only then a mini housing bubble could result.  If the number of buyers then reduces when the Help to Buy scheme is withdrawn, there is a fear that many new homeowners could end up owing more than the house is worth.

If you would like to speak to someone about the Help to Buy Scheme, please contact a member of the Residential Conveyancing team.