Help to buy- Part 2
The mortgage guarantee scheme is here!! Early!!! Following on from our previous feature news article, find below our guide to the remaining two Help to Buy schemes.
The NewBuy scheme was launched by the Government back in March 2012 and was intended to help people get on or climb the property ladder, as well as encouraging the building of more new homes. With the Government and participating builders respectively providing guarantees for 5.5% and 3.5% of the purchase price of a new build property, as little as 5% deposit would be needed by the purchaser to obtain a mortgage. As with other HtB schemes this must be a property you intend to live in and not let out, and the value must be under £500,000.
The mortgage lenders involved in the scheme are Aldermore, Halifax, Nationwide, Natwest, Santander and Woolwich.
A list of participating builders can be found here: http://www.newbuy.org.uk/list-of-newbuy-builders/
Mortgage Guarantee Scheme
The mortgage guarantee scheme is designed to increase the appetite of lenders for high ‘loan to value’ lending to customers. Under the scheme, once again borrowers can put as low a deposit as 5% of a property value with the lenders offering a mortgage to cover the remaining 95%. The lender will then pay a fee to the government which will provide them with a seven year taxpayer guarantee covering 15% of the deposit. These mortgages are being offered with competitive rates by numerous banks who have already opted to participate, and there are more likely to join up in the coming weeks. Again the buyer must intend to live in the property which must be under the £600,000 in value.
HtB; Another housing bubble? Or addressing the issue within the market?
Arguments against the HtB scheme predominantly centre around fears of creating of another housing bubble. House prices are on the rise at the highest rate since 2006 and increasing the numbers of buyers will arguably only increase prices faster. Many commentators instead advocate the liberalisation of planning rules in order to increase the supply of houses, thus addressing the current undersupply and maintaining wider prices.
HtB may also see renters hit hard as the amount of property available to let significantly reduces and rental costs will inevitably climb. It is also yet to be seen whether the cost of the insurance fee lenders will pay to the government will be passed onto borrowers. These two factors may price out some of the buyers who HtB intended to help onto the market.
There are also many supporters of the governments HtB scheme, with counter arguments to those above. Firstly it is claimed that HtB is addressing the issue of a partially functioning housing market where currently ownership is constrained by limited mortgage availability, therefore making mortgages available at rates which, without HtB, people simply could not afford.
It is also hoped that the property market will be stimulated and new home building incentivised. This has already been shown by the success and uptake of the equity loan scheme and NewBuy which targets new builds specifically. It is believed that mortgage guarantee will further increase market activity leading to the building of new homes to meet this growing demand.
The treasury has put in place tighter restrictions on the lending of mortgages with a guarantee, in a hope to reduce the risk involved for both the taxpayer and the lender. Furthermore, the Bank of England is entrusted with monitoring the effects of HtB and deciding when it has served its purpose, thus reducing the risk of another housing bubble.
The dedicated website http://www.helptobuy.org.uk/ provides further information on all schemes which have been discussed, along with details of how to locate your local HtB agent. Should you have any questions or require any additional information, feel free to contact our office and we will be delighted to assist.