The Help to Buy scheme which was established in 2013, and has since helped tens of thousands of people purchase a property, will be changing soon. Help to Buy has two distinct ‘sections’; only one of which will be affected.
The first of these is the Help to Buy Equity Loan scheme, which is only available on New Build property. Within this scheme, buyers can buy a new build property with a 5% deposit, and obtain a 20% equity loan from the Government subject to their individual circumstances and terms and conditions which vary depending on your geographical location (England/Scotland/Wales). This loan is interest free for the first five years, then from year six onwards interest starts to become payable on an annual basis.
This section of the scheme will remain unchanged at present and is still fully available.
The second of these is the Help to Buy Mortgage Guarantee scheme. This scheme enables buyers to purchase a property with a 5% deposit and a 95% mortgage from a mortgage lender on the basis that the Government ‘guarantees’ the next 15% of the property’s value in the event the buyer gets into difficulty and was repossessed for example; reducing the lender’s risk in essence.
It has been confirmed by the Chancellor and Bank of England that this scheme will be closing at the end of 2016. Since first being launched 79% of purchasers using this scheme have been first time buyers. The reason for the closure is that when the scheme was launched in 2013 only a handful of mortgage lenders offered 95% loan to value mortgage products, and so some stimulus was required within the mortgage and property markets. Since 2013 interest rates have dropped significantly and currently over 30 mortgage lenders now offer 95% loan to value mortgage products ‘as standard’. In other words the scheme has ‘done it’s job’ and is no longer required to stimulate the markets.
At One 77 Mortgages we have had a lot of dealings with Help to Buy over the last few years, and indeed are on the recommended broker panel for Help to Buy in the South of England. It is not yet clear when the Help to Buy Mortgage Guarantee scheme will be phased out, but we suspect that it may well be the case that anyone wishing to use the scheme will have had to complete on their purchase before the end of 2016 in order to qualify. In other words anyone wishing to benefit from the Help to Buy Mortgage Guarantee scheme needs to act quickly in securing a purchase so that it can complete before the end of the year.