Recent mortgage Q&A
Are help to buy shared equity mortgages the right option?
The Help to Buy shared equity scheme
Want to buy your own home, but struggle to raise the funds to make up the deposit needed? If you have managed to scrape together enough cash to cover a 5% deposit on the house you want, as long as you are buying a house which is less than £600,000, you could get a hand with the Help to Buy shared equity mortgage. If you think that you won’t get any other help with your mortgage, and really want to move into your own home, then this government-backed scheme could be the perfect solution to your needs.
How does Help to Buy work?
The purpose behind the development of the Help to Buy scheme is to ensure that first-time buyers and those in rental properties are able to raise the money needed to cover the cost of a deposit. The scheme is in the form of a loan, which allows borrowers to create a larger deposit if they can already submit 5% of the total price of the mortgage. The loan is a minimum of 10% of the total cost of the house, and can be a maximum of 20%. The loan lasts until the house is sold, when the borrower will repay the same percentage of the price back to the scheme.
There are two main forms of Help to Buy, the first of which will allow borrowers to take this interest-free loan. The second part of the loan, which is known as the Guarantee scheme, is designed to help borrowers who are struggling under a mortgage debt. The homeowner will need to raise the same 5% deposit, and then the government will offer the lender a guarantee – a promise to cover the debt – of up to 15% of the loan.
Can the Help to Buy scheme help me?
How to apply for the shared equity mortgage scheme
If you need assistance with a house purchase, then you may find what you need with Help to Buy. Although the scheme originally was designed to ensure that first time buyers could get the money they needed to invest in homes, there is now more scope for those who currently have homes which are too small, or who use rented accommodation. The government has said that they would like to cover the ‘deposit gap’ which means that most potential buyers are just unable to gather together a deposit large enough to meet the demands of lenders. It is now funded by taxpayers, so there is no delay in getting the money you need.
If you own your own home, and want to trade up for a larger property, or one in the country rather than the city, then you can get an interest-free loan for 5 years. If you manage to pay back that loan within those five years, in addition to your mortgage, then you will never have to pay any interest on your Help to Buy Loan.
What are the disadvantages of the Help to Buy Loan?
Although the scheme seems pretty sweet, and can help you to cover your deposit, homeowners should remember that it is actually increasing the amount of debt that they will have to shoulder in the next 5 years. The Bank of England seem to consider that the mortgage scheme is unsustainable for the long term, and it may also result in homeowners putting up prices because they are so confident that their buyers will be able to get the money they need. If you are not sure about this loan, and are concerned about the consequences, then you may want to consider an alternative in the form of a shared ownership, or simply waiting until you have a large enough deposit to pay for your house on your own.
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