Help to buy is a government lending scheme that enables new home buyers to get mortgages easily by assisting them in raising a deposit for a mortgage. Traditionally, mortgage lenders usually require borrowers to make a deposit or have security when applying for a mortgage. The deposit can be a percentage of the price of the house that the lender intends to pay. The security is a guarantee that the lender will not lose his money when he gives out a mortgage. The more deposit you make, the better your mortgage deal will be. The bank can offer you lower interest rates and larger mortgages when you pay more deposit. The big question still remains how does help to buy work. Basically, help to buy helps you raise larger mortgages so that you can enjoy a good deal from a lender.
Help to Buy Scheme arrangements before 2017
There are two slightly different arrangements within the help to buy scheme. The first one is the Mortgage guarantee scheme. This scheme was instituted on October 8th, 2013 and was expected to run until December 31st, 2016. The scheme should have expired at the beginning of 2017. The other arrangement is the Equity Loan scheme. It was instituted in April 1st, 2013 and is open until 2020. It is the arrangement that anyone who intends to get into “Help to Buy” scheme from 2017 should join. There is no significant difference between the two arrangements.
Requirement for Help to Buy
The first thing you need to know is the criteria for admission into help to buy scheme. Not everyone is eligible to get help with the scheme. This scheme is only for new home buyers. The buyer must use the property has his sole residence. He cannot rent out this property. The now expired “mortgage guarantee scheme” could be used to buy both new build and pre-existing houses. Equity Loan schemes apply to only new build homes. This means that the scheme is getting tighter in its requirements. The borrower must also prove that he can repay his mortgage. His credit rating must be good. He must also have a steady job or a reliable source of income.
Equity Loan Scheme
In equity loan scheme, a buyer is expected to raise a deposit of only 5% of the property value. The government will then give the buyer an extra deposit of up to 20%. With a total deposit of 25%, you will find it easier to get a good mortgage deal. Ordinarily, you can get a mortgage with your 5%. However, a lender may be stricter on an applicant with only 5% deposit. The extra deposit that you get from the government is a loan that must also be repaid. The loan is interest-free for the first five years. On the sixth year, you will have to pay an interest of 1.75% of the loan. The interest rate will increase by 1% every year until the loan is fully repaid. You may also have to pay for inflation.
Borrowers can repay the equity loan at any time during their stay in the property. You may pay 10% or 20% of the loan provided that the loan is at least 10% of the value of your property. If you leave your property without paying the loan, the government will sell the property and reclaim its money.