Dave Hesson, Regional Managing Director at Morris Homes, explains the new government Help to Buy scheme and how it will help househunters across the UK.
Important Update: 29/09/2013
The second phase of the Help to Buy scheme is now being launched three months earlier than originally planned. For the most recent Help to Buy information please click here and see our most recent articles.
Original article below:
The government recently announced the launch of ‘Help to Buy’ in the recent budget – its new initiative for homebuyers.
It has been designed to support those who have a five per cent deposit buy their first home or move up the property ladder, improve the availability of new homes and increase the supply of low-deposit mortgages.
There are two ways to benefit from Help to Buy: Equity Loan and Mortgage Guarantee.
Equity Loan is already accessible across the UK from housebuilders like Morris Homes and it is available for the next three years. Mortgage Guarantee won’t be available until January 2014.
New schemes like these can often be very confusing to buyers so we wanted to cut through the jargon and make it easier to understand.
This effectively replaces the FirstBuy scheme that was previously available. It is open to both first-time buyers and existing homeowners as long as they buy a new build property up to the value of £600,000.
It means buyers only need to have saved a five per cent deposit to benefit from a 75 per cent mortgage which significantly reduces their monthly repayments.
This is because the government will supply the additional 20 per cent through an equity loan. The loan is interest free for the first five years and can be repaid at any time or on the point of sale.
The good news is that this means that on a Morris home worth £124,750 the figures stack up as follows*:
• Five per cent deposit required: £6,238
• Government loan: £24,950
• Mortgage amount: £93,562
• Monthly repayments could be: £473* (see below)
The Mortgage Guarantee option is available from January 2014 and includes both new build and existing homes. Again, only a five per cent deposit is needed but rather than getting a loan, the government will instead guarantee a portion of the mortgage.
This security will encourage lenders to offer more low-deposit mortgages so that it’s possible to buy immediately instead of having to wait and save.
The Help to Buy scheme means that buying a new home is now affordable for millions of people across the UK. Housebuilders and the government will work together to ensure it helps as many people as possible make buying that dream home a reality.
*Monthly repayments: Monthly payment based on a 25 year repayment mortgage with Halifax borrowing £93,562.00 on a fixed rate of 3.59 per cent until 30/09/2015 with 28 payments of £472.92 followed by 272 monthly payments of £491.72 at a standard variable rate currently 3.99 per cent to give an APR of 4.1 per cent. The valuation fee is £315.00 payable up front. There is no product arrangement fee to the lender. This is based on the 80/20 Help to Buy shared equity scheme and requires a 5 per cent deposit of £6237.50 from the buyer. Please note these deals could change at any time.
Some information contained herein may have changed since it was first published. Zoopla strongly advises you to seek current legal and/or financial advice from a qualified professional.