Research published in the past week has shown that a third of first time buyers are confused about Help To Buy and don’t understand how the scheme works.
There are two very different parts to Help To Buy. Unhelpfully, the Government decided to call them Help To Buy Equity Loan (Part 1) and Help To Buy Mortgage Guarantee (Part 2), not particularly innovative or clear! Both parts require only a 5% property deposit, but that is where the similarity ends. Help To Buy Equity Loan involves the Government lending you money, which is 20% of the property price, leaving you to apply for a 75% Loan To Value mortgage. You don’t pay anything back on the Government loan for five years but start repayments on the mortgage from day 1. Help To Buy Mortgage Guarantee doesn’t involve any kind of Government loan, you just need a 95% LTV mortgage which you start repaying straight away.
Anyhow, moving onto the myths …
Help To Buy Mortgage Guarantee is a scheme that you need to apply for
Untrue. Help To Buy Mortgage Guarantee is a scheme for the lenders, not the buyers. The lender pays a fee to the Government and in return, the Government guarantees 15% of the value of the property for seven years. This means that if a buyer stops making mortgage repayments and defaults, the lender is able to use the guarantee if they need to. The purpose of the scheme is to make lenders more comfortable with bringing riskier 95% LTV mortgages to the market. If you have a 5% deposit, all you need to do is look for a lender offering a 95% LTV mortgage and apply in the normal way. There is no need to apply through a scheme or Government portal; you go straight to the lender.
Help To Buy Equity Loan is the one that requires a special application through a Help To Buy agent, so they can decide whether to give you the 20% loan.
Help to Buy is only for first time buyers
Untrue. The scheme is available to anyone who will make the property their only home, which includes first time buyers, home movers and people who have owned a property previously. The scheme is not open to anyone for whom the purchase would be a second property registered in their name. So that excludes property investors, landlords and anyone looking for a holiday house.
Here are some examples to make it extra clear.
Would these people be able to apply for a Help To Buy Equity Loan?
• A family who currently own their home and are wanting to move to a bigger property, but only have a small deposit. They plan to sell the current home in order to fund the new one – YES
• A couple who currently own a flat and want to buy a bigger property. They are planning to keep and rent out their flat and want to apply for Help To Buy on the new property – NO
• A couple who are living in rented accommodation. One of them used to own a property but sold it recently, the other has never owned a property – YES
• A couple who are living in rented accommodation and want to buy for the first time together. One of them has an investment flat that is rented out, but the other person is a first time buyer – NO
Help To Buy Mortgage Guarantee means I will be protected if I can’t make the payments
Untrue. Mortgage Guarantee doesn’t refer to any protection for the buyer, the protection is for the lender in case the buyer is unable to make mortgage payments any longer. As a buyer, you still have the same responsibilities and risks as you would with any other mortgage. The lender will not be any more lenient, or forgiving, just because they have some additional security from the Government. If you stop making repayments, the lender is entitled to repossess your home in a worst-case scenario.
Help To Buy is only for new builds
Untrue. If you are applying for a 95% mortgage, then you can look at both new and older properties. The restriction on new properties only applies to people applying for the Help To Buy Equity Loan scheme. It’s also important to know that you don’t apply for the Equity Loan scheme through the developer, it must be done through a Help To Buy appointed agent. Lists of these agents can be found on the Government’s Help To Buy website.
I’m more likely to be approved for a Help To Buy mortgage than a normal mortgage
Untrue. You will go through exactly the same checks and assessments as would be standard when applying for any type of mortgage. If you have had previous issues with credit or loans, then it is still going to be difficult to have the mortgage approved. If you are applying for the Help To Buy Equity Loan, the assessment process is even more thorough, as the Government will need to be sure that you meet the inclusion criteria and are able to afford the repayments.
If I have a 5% deposit then I have to get the mortgage from a Help To Buy lender
Untrue. 95% LTV mortgages are also being offered by lenders who aren’t signed up with the Help To Buy scheme and they shouldn’t be ignored, they are not riskier. In fact, some of the most competitive 95% LTV mortgages are from lenders who are not signed up with Help To Buy! In the 95% LTV mortgage product range there are both fixed interest and variable interest products, some come with free valuations and fee assistance, whilst others have a limit on the maximum loan size. As a consumer, you should shop around and apply to the lender who is offering the most competitive product that meets your needs. If you are unsure about which mortgage product may be best, it’s always good to speak with a specialist mortgage advisor. You don’t necessarily have to pay for their advice, as some will take commission from the lenders. Just make sure that the advisor can access the whole of the mortgage market and can provide advice, as well as information.
Written by Amie Gramlick at HowToHomeBuy.co.uk – the free, independent advice site for home buyers
For more helpful information and independent advice on the home buying process, visit HowToHomeBuy.co.uk