Help to Buy is a government scheme in the United Kingdom which can help first time home buyers and those looking to move home, get a property with just a 5% deposit. The government programme was announced in the 2013 budget speech given by George Osborne and has been described as the greatest government intervention in the housing market since the 1980s. Help to Buy is an expanded and extended version of a previous programme known as FirstBuy.
In the 2013 budget, phase one of the Help to Buy Scheme was announced and it launched on April 1. The second phase was then launched in October 2013. In the 2014 budget, phase one, originally scheduled to run till 2017, was extended until 2020, but phase two remained unchanged.
The Help to Buy Scheme can be benefited from in two major ways:
Equity Loans: here first time buyers and existing homeowners are receive loans from the government to buy a newly built home.
Interested parties in equity loans need to first prove that they can meet criteria set by the mortgage lender. This means that the monthly payments can be conveniently covered and a positive credit score. A help to buy agent in the relevant area will then be contacted. Participating lenders in the Help to Buy equity loans scheme include:
Mortgage Guarantee: the government is responsible for the coverage of part of losses mortgage lenders sustain from unpaid mortgage. Mortgage guarantee is available for both old and new properties in the UK.
Applicants for mortgage under the Help to Buy guarantee scheme will be subjected to the same checks as regular mortgage applications offer. Therefore, proof that the mortgage repayments can be made need to be shown, including meeting the lender’s credit score requirements. Participating lenders include:
The scheme is unavailable for people who:
In England, both equity loans and mortgage guarantees apply to homes with price tags of up to £600,000. Northern Ireland has a different equity loans scheme called co-ownership, and its mortgage guarantee scheme can be applied to homes that cost less than £600,000. The maximum amount for home prices under equity loans and mortgage guarantees for Scotland is determined by the value of the property and the time the application is completed. Applications completed on or before March 31, 2017 for instance, will have a maximum price fixed at £230,000. In Wales, both Help to buy schemes apply to homes costing up to £300,000.
There are five different schemes which are subject to peculiar restrictions and vary from one country to another in some cases.
A 5% deposit is contributed by buyers and the government provides an equity loan for up to 20% of the house value. Buyers then provide the remaining funds to balance the payment, usually buy getting a mortgage. Equity loans are available only for newly built houses that cost less than a fixed amount, for instance in England, buyers can take advantage of the help to buy scheme for houses less than £600,000 and in Wales, £300,000. The loan comes interest-free for the first five years. This type of help to buy is known as “phase one” and is the most high profile of the schemes, simply referred to as Help to Buy.
Ten different providers (an increase from five at the time of the scheme launch) offer 5% deposit mortgages and the government, in the form of taxpayers, acts as a guarantor for the mortgage. This type of help to buy is not restricted only to newly built houses like for the equity loans type. The restriction is mainly on the price of house which the applicants are interested in. Anyone wanting to purchase a home in the UK worth less than £600,000 is eligible for the scheme. Mortgage guarantees is usually referred to as “phase two” of Help to Buy. When the value of a home drops or the mortgage lender is owed more than 95% of the cost of the value, a re-mortgaging option is available from some lenders. The government of the United Kingdom announced in September 2016 that this scheme, i.e. the Mortgage Guarantee type of Help to Buy would not be extended for 2017.
Savers pay money into an ISA under this scheme and are provided with cash bonuses from the government when buying a property.
This scheme was available through housing associations in the UK before the launch of Help to Buy by the government.
This scheme allows buyers to deposit only 5% of the cost price for a newly built home in order to purchase it.
One of the goals of the phase one programme was to facilitate the buying of newly built homes in order to help first time buyers acquire property of their own. Also, existing homeowners could equally purchase new builds therefore increasing the demand for new houses. George Osborne claimed that increasing the demand for new builds would stimulate the supply aspect of the housing market which means that more houses will be built to meet the increased demand.
The Financial Times has reported that during the first year of its operation, there was “clear evidence” that Help to Buy had motivated members to offer greater loan-to-value ratios, with the number of available products at ratios higher than 90% doubling. A fifth of the new houses that were built and sold during the first year of the first phase were bought with the help of equity loans Help to Buy.
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