help-to-buy-mortgage-guaranteeThe Basics:

  • Works in the exact same way as a normal mortgage other than the fact that the government will guarantee your mortgage to the lenders
  • Because of this guarantee lenders taking part can offer buyers higher mortgage loan values allowing purchasers to buy with lower deposit values
  • This means houses can be bought with deposits as small as 5% of the total value, the buyers will, however, still have to take out a 95% mortgage which must be paid as normal to the lender

 

Eligibility:

  • Buyer can be a first time or house mover
  • The buyers cannot own any other property nationally or internationally
  • Property cannot be bought through shared ownership
  • The house cannot be bought with assistance with any other government backed Help-to-Buy scheme with the exception of the Help-to-Buy ISA
  • The size of the mortgage cannot be more than 5 times your income
  • Property must:
    • Not be worth more than £600,000
    • Be rented out after the purchase
    • Be purchased with a repayment mortgage (not an interest only)
  • This scheme will cease to exist after the 31st of December 2016

 

Pros

  • Most helpful for buyers who want to move up or get on to the property ladder but cannot afford to save a larger deposit
  • The guarantee does not require any extra funds from buyer the government will simply pay out a sum to help cover the losses of lenders in the event of a default on mortgage repayments

 

Cons

  • Buyers are still responsible for mortgage repayments and as such will have to prove they can afford high loan-to-value mortgage
  • The guarantee does not cover any losses suffered by buyers in the event of a default or foreclosure
  • The guarantee ends after seven years; this is the point of research shows the chances of default drop and most buyers own around 20% of their property

 

Conclusion: An excellent opportunity for many first time buyers as well as home movers to move on to or up the property ladder but do not have the time or capital to afford a large enough deposit. It is important buyers have an appropriate income to be able to afford the loan payments. Please note is that this scheme does not offer any funds to buyers but will be able to help buyers with small deposits to secure mortgages.

Angie Newnham
Article by Angie Newnham
Having worked for various law firms in the Bournemouth and Poole area Angie Newnham decided to set up her own business in 2010. Angie’s experience covers a range of legal disciplines including Property Law and Conveyancing, which includes both residential, commercial and agricultural work, Social Housing, Landlord & Tenant issues, Wills, Lasting Power of Attorney and a niche interest in equine law and equestrian agreements.

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