The Government’s Help to Buy mortgage guarantee scheme is set to end on December 31st of this year. The scheme was introduced in 2013 with the intention of helping buyers with low deposits have access to mortgages.
Since it was launched, around 86,000 homes have been purchased with the help of the scheme.
The Help to Buy scheme
Under the scheme, lenders have the opportunity of purchasing a guarantee on mortgage loans. The guarantee is provided by the Government. For example, if the home to be purchased is worth £200,000 and the buyer only has a 5% (£10,000) deposit, the Government might cover the next £30,000 of borrowing.
This reduces the risk for the lender and allows them to offer borrowers a higher loan-to-value mortgage of between 80 and 95%.
The borrower still owes the full amount of the mortgage and must make all of their payments as usual. If, for example, they are offered a £190,000 mortgage, they must still pay back the £190,000 with interest, despite the fact that the Government has guaranteed (say) £30,000 of their loan.
The end of the scheme
Chancellor Philip Hammond has written to the Bank of England confirming that the scheme will be scrapped as planned. In his letter, he notes that there are 30 lenders that are offering 90 – 95% mortgages outside of the scheme, demonstrating that “The mortgage market has become less reliant on the scheme as confidence has returned.”
The Chancellor concluded that the scheme was introduced with a specific purpose and that purpose had now been successfully achieved. For this reason, the scheme will close at the end of 2016, as planned.
Other Government help
Despite the Help to Buy Mortgage Guarantee Scheme coming to an end, there are other Government schemes that can assist buyers with purchasing a property.
Help to Buy ISA – if you are a first time buyer, the Government will top up your savings by 25%. An new Lifetime ISA is due out next year which works in a similar way but allows you to save more money for a larger bonus.
Help to Buy Equity Loan – the Government will lend you 20% of the cost of a new build home, allowing you to purchase with only 5% cash deposit. You’ll therefore only need a 75% mortgage. You won’t have to pay any fees on the Government loan for the first five years.
Shared Ownership – you purchase a share of a property – as little as 25% is possible – and then pay rent on the remaining portion. You purchase additional shares when you’re ready, until you own the property in full.
Housing Association tenants can buy their house from their landlord after renting for 3 years, at a discount of between £9,000 and £16,000.
Some Council or Housing Association tenants can buy their home under a shared ownership scheme, called Social HomeBuy.
A forthcoming ‘Starter Homes’ scheme will allow first time buyers to purchase a new build home at a 20% discount.
If you have a local connection to a particular area, you may be able to buy a new Council or Housing Association house at a 25 – 50% discount, under the Discounted Sales scheme.
Another non-Government scheme worth looking at is Barclays’ Springboard Mortgage. This gives you a 100% mortgage when one of your relatives deposits a guarantee sum for a period of three years (which is then returned to them with interest provided that you do not default).
If you would like advice about any of the above schemes or purchasing a property in general, contact our property department.