Government Help to Buy Scheme.

The Help to Buy Scheme ends 31st December 2016.

So much has been written about the new Help to Buy Scheme introduced by the Government, will it create an artificial housing boom? what lessons did we learn from the last crash? all these may be scaremongering, time will tell.

The fact is the scheme exists and you can read lots about the economics on the web. What most people want to know is how the scheme works and if they are eligible. If you are looking to buy a property many people can afford the mortgage payments but not the 15%, 20% deposit.

The great thing about the Help to Buy Scheme is the reintroduction of the 95% mortgages, these are nothing new they were commonplace 20 years ago, in fact I remember mortgages in excess of 100% giving buyers a bit to furnish the new house, misplaced halcyon days in the financial market!

The scheme has caught a few lenders out and at the moment only a few are in the market offering the help to buy scheme. As with all mortgages, do your homework, chances are you will paying more on a 95% mortgage compared to an 80% mortgage, and I realise the 95% is tempting but, if possible, stretching to a 10% deposit will give you much better mortgage options.

Who can apply?

The short answer is almost everyone, the scheme is designed with First time buyers in mind, but if you are a home owner you may use the scheme as well, but the scheme is a no go for investments, it must be your only property.

How much can I borrow and how is it worked out?

You can borrow anything up to £570,000 against a property value no greater than £600,000.

You can do this in two ways under the government scheme, the Mortgage Guarantee, under which you have a standard mortgage no greater than 95% of the lower of the purchase price or valuation of the property, you will need to pay the deposit, and the government will guarantee repayment of the mortgage to the lender (this is via an arrangements with the government to cover up to 15% of the loan, in return the lender pays an premium to the government of around 1% of the Loan).

Each lender will have their own lending criteria and most have an online calculator to help you work it out but if you don't have loans or other financial commitments, its around 4x income (gross), it is good to work out what would happen to your repayments if interest rates went up by 2% or 3%, it's advisable to know so you can understand your own affordability.

The second method on the Help to buy scheme is the Equity Loan, these are only for new build property and for properties built by builders participating in the scheme.

It works that the Government lends you 20% of the purchase price, you will need to put up the 5% and the rest 75% is made up by your mortgage company, which is a clever scheme, the idea from the government is to get builders building new homes.

The big plus points on this scheme are you are only looking for a 75% mortgage, which is great as you will have much better terms available, but what about the 20% government loan I hear you ask, that is repayable when you sell and it is payable in a lump sum equal to 20% of the sale price even if the value of the property goes down, for the first 5 years you do not pay the government a penny, in year six you will be charged 1.75% of the loans value (this most likely will be cheaper than your mortgage rate) the re-payment rill rise each year to keep pace with inflation.