Recent mortgage Q&A
How the help to buy mortgage guarantee can assist you
Buy your home with the help of the mortgage guarantee scheme
Want to buy a home, but don’t have the money to put down a large enough deposit for the mortgage? With the second part of the government’s Help to Buy scheme, you could benefit from a guaranteed mortgage which provides you with up to 15% security on the size of your mortgage. With this scheme, you can aim a little higher when you are seeking to get a mortgage, and you can also benefit from having your loan guaranteed. This makes it easier for you to get the mortgage in the first place, and also to make sure that your bank feels secure with the amount that you have asked for.
Who is the Help to Buy loan for?
The scheme is designed to help first-time buyers and those who want to move home to get a high mortgage of between 80 and 95 percent. This is sometimes known as the high LTV mortgage, which is one of the most risky, and is likely to be refused or not offered at all by many lenders unless you have this backing behind you.
In this scheme, those who have 5% or more of their house value in the form of a deposit can get help with a guarantee. The scheme promises to the bank that if you cannot repay, they will cover as much as 10% of the original mortgage. This is not a face-to-face deal, but is an agreement between the lender and the government scheme management, rather than between you and the government. You will be entirely responsible for the payment of the mortgage, including the 10% that is secured by the Help to Buy mortgage guarantee.
What are the advantages of the mortgage guarantee?
Apply for the Help to Buy mortgage guarantee scheme
With the guarantee, borrowers can get much more from their bank or lender than they would have without the government scheme. Unlike the main part of the Help to Buy scheme, this is not only for New Build homes, but for any property that you wish to buy. The house must be worth less than £600,000, and you must have the money to put up the 5% deposit. For example, if you purchase a home for £200,000, you will need to put up a deposit of £10,000 on your own. You can then get a loan of £190,000 from the lender, or a 95% LTV mortgage. Part of this mortgage, £30,000, will be covered by the government scheme. In order to be eligible for this mortgage, you must be using this property as your main home, it must not be a buy-to-let property, and it must be fully owned by you, so there must be no other schemes running at the same time.
What are the disadvantages of the mortgage guarantee
Although the loan is a positive sign of the government’s interest in borrowers, there are still some issues with the guarantee. The risks are the same as for any other type of mortgage, which means that you will still owe your lender a 95% mortgage. This is a high-value mortgage, and your repayment rate could be quite high. The interest rates may also increase as you go through the mortgage, depending on the Bank of England’s interest rates and if they happen to increase in the future.
Even though the government is guaranteeing a small part of the loan, the majority of the mortgage will be unsecured from the scheme. This may mean that lenders are unwilling to allow you to take out the loan in the first place, even with a government scheme to back it up. It could also mean that there are significant risks of your home being repossessed, or even of you being declared bankrupt, if you fail to keep up the payments on a larger mortgage.
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