Help to Buy mortgage guarantee scheme rules

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H2B Guarantee Scheme – key information

Those of you who wish to benefit from the new Help to Buy Mortgage Guarantee Scheme will be wondering if and how you can be included in the scheme.

Mortgage Guarantee Scheme rules were issued by HM Treasury on 3rd October 2013 and here are some of the key points that effect you as the potential borrower.

How much can I borrow?

Using a mortgage within the scheme you can raise up to 95% of the value of the property.

Total lending will be subject to lenders affordability calculations, and will therefore depend on your income and outgoings and the specific lenders rules.

For what purpose can I use the Mortgage Guarantee Scheme?

You can borrow to purchase your main home provided you do not own any other property in whole or in part wherever situated.

Under the scheme you can move to a new home, provided you sell your current home at the same time.

Under the mortgage guarantee scheme there is provision for you to re-mortgage your main home (although as yet, we do not know which lenders, if any will offer this). When re-mortgaging you cannot raise extra funds to buy other property.

Under the guarantee scheme you can buy existing house stock as well as newly built properties.

Your Help to Buy mortgage cannot be used to purchase a buy to let or commercial property. Neither can it be used on a right to buy, shared ownership, or shared equity arrangement.

(‘shared ownership’ means a part owned, part rented property – NOT two people buying together).

Can I borrow on an interest only basis?

Only capital repayment mortgages are available under the scheme.

What about poor credit history?

The scheme rules specifically state that applicants who are ‘credit impaired’ cannot be considered for a mortgage.

‘Credit impaired’ for the purposes of the rules means those that:

  • Have within the two years prior to completion had a mortgage or loan in force which has been in three months arrears.
  • Has incurred one or more County Court Judgements totalling more than £500 within the past three years.
  • Has been bankrupt or in an Individual Voluntary Arrangement within the past three years

This is in line with the FCA definition of a credit impaired applicant.

Those are the set rules but further than this any applicant will need to be accepted by the lender to whom they apply. Criteria to be accepted for a higher loan to value mortgage is tight with lenders and we do not expect this to change under the mortgage guarantee scheme.

Therefore applications where either applicant has a bumpy credit history showing CCJ’s, defaults, or missed payments, are highly likely to be rejected, even if the criteria in the list above is met.

Certainly, the lenders mentioned as offering product from this month have no track record of favourable outcomes for poor credit applicants.

How much will it cost?

This depends on the mortgage products offered by the lenders. From what we have seen to date, a 95% mortgage on a £150,000 purchase is likely to cost around £865 per month.

How do I apply?

You do not need to apply to the Government or any Government body for the scheme. Applications go to the Lender, either direct, or through a regulated mortgage broker such as ourselves.

If you do have a cash deposit available of 5% or more, the first step would be to see if you likely to be accepted by a lender. Once you have a mortgage offer in principle you can start looking for your new home.

To find out more call us now on 020 8979 9684

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