17-10-2013

HELP TO BUY – WHAT IS IT ALL ABOUT?

Here we give you the low down on the latest Government scheme designed to crack a whip at the housing market. We answer your questions and concerns and clarify points that may not have been clear.

Help to Buy 2 is a government scheme that allows both First time buyers and second time buyers to purchase a new main residence with just a 5% deposit.

The maximum purchase price on a Help to Buy scheme is £600,000. It is available for use as your main residence, you can’t rent out the property and you must only own the help to buy house (you can’t let out a current main residence and then buy a new house on the help to buy scheme, sorry!).

The mortgage MUST be taken out on a capital and interest basis also known as a repayment mortgage.

How is this scheme any different to the last Help to Buy Scheme?

The previous scheme was for new build homes only and involved a government equity loan at 0% for 5 years and then 1.75% in year 6 and increasing after that. This scheme is for new build property and also existing property and is not an equity share. The government are offering lenders (for a fee) a guarantee for up to 15% of the property value making it less risky for lenders to lend at 95%.

There are 95% products already, why is this any different?

The scheme is different because previously the only lenders offering 95% were very localised (e.g. Teachers Building Society only offer 95% in Dorset or to professionals in the education industry). This is partly because the amount of capital banks have to hold on deposit for 95% loan is higher than the amount they have to hold at lower loan to values. Additionally there is also the risk that in the event of repossession the house sells for less than it was purchased for and the lender may not get all of their money back.

Under the new scheme the government is insuring the lenders against this risk. If you remember Mortgage Guarantee Schemes (MIG) then it is similar to that except the government is now providing that guarantee by insuring lenders against the risk of lending at higher loan to values. This has led to more lenders offering 95% loan to value mortgages, so far we have seen NatWest and Halifax launch and expect Aldermore, Santander, One savings bank and others to follow but probably not until the New Year.

Sounds good but I bet the rates are high?

As already mentioned there is an element of risk and rates are priced on risk, similarly if you were lucky enough to have a 40% deposit the rates would be lower as the risk is lower, however, at 95% the rates will naturally be higher. Current rates are at 5.19% at their highest but as more competition enters the market over the coming months we will undoubtedly see lenders competing for the business, resulting in lower rates. Given that the interest rates are historically low this is an ideal time to fix in on what is a competitive deal at 95%.

Is this going to create a housing Bubble?

Hardly, if we look at London house prices then we can see that they have increased by 7.1% in August 2013 but that the average UK house price increase was 1.3% in August and regions such as the North East registered decreases of 2.2% so we are far from a UK housing bubble. The average UK home is now £164,654 with London average being £389,066. (source: Land registry – http://www.landregistry.gov.uk/public/house-prices-and-sales ).

In our opinion there is still a massive shortfall in housing and it is this which will continue to drive up house prices. Our clients are reporting having to make offers on Bristol and London property of over the asking price and even then not always getting the property.

How do I apply and when can I move in?

You can apply now and completion can happen right away. Some lenders won’t offer this scheme until January or won’t allow completion until January so best advice is to speak to your broker to clarify the lenders position. Speak to an expert broker at Fox Davidson 01173 736200 or 0203 056 8888 or email enquiry@foxdavidson.co.uk