The new Help to Buy government scheme has recently been rolled out across the UK. The goal is to help buyers get on to the property ladder or help existing property owners move up the property ladder. This will be achieved by giving buyers the option of purchasing a property with as a little as a 5% deposit.
The Help to Buy scheme has two ways in which it can help people purchase a property up to the value of £600,000. These are through either a Mortgage Guarantee or Equity Loan.
Mortgage Guarantee will be available to buyers looking to purchase either pre-owned or new build property. It is available with a standard mortgage of up to 95% of the purchase price. This scheme works in a similar way to how a traditional mortgage works, however, the scheme will give more buyers the option of getting a mortgage if they pay at least a 5% deposit. This will be possible because the government will make guarantees to repay the lenders.
A Mortgage Guarantee is available to first-time buyers as well as existing property owners. Buyers need a minimum of a 5% deposit and the property which buyers wish to purchase cannot exceed £600,000. The property must be based in the UK and the potential buyer must not own another property!
Buyers looking to purchase a property through the new Help to Buy scheme can request an Equity Loan to fund their purchase. With an Equity Loan the government lends the buyer 20% of the cost of a new-build home. This means that the buyer only needs a 5% deposit and a 75% mortgage.
The property will remain in the buyer’s name but when the buyer decides to sell or they come to end of their mortgage period they will be required to pay back the loan. The repayment will be 20% of the sale price which could be more than the loan depending on how property values change during the period of ownership.
Equity Loans are available on properties in the UK that are valued up to £600,000 for both new buyers and existing home owners. The property must be the buyer’s only property and buyers will need to provide a minimum 5% deposit.
It is important that buyers who take out Equity Loans understand that interest will be charged. For the first 5 years the loan will be interest free, but from year 6 onwards the interest rate will be 1.75% of the loan’s value. This number will increase by the retail price plus 1% every year.
At CPS Homes we pride ourselves on delivering excellent customer service to all our clients. Be that our landlords, tenants, buyers or sellers. If you have any questions regarding Mortgage Guarantees or Equity Loans, please get in touch and we’ll do everything we can to help.