Help to Buy Scheme – confusing Government information

Help to Buy House

Help to Buy

H2B hurry up

David Cameron announced yesterday that the Help to Buy Scheme phase two was being brought forward to start this week instead of in January 2014.

In appears many people have accessed the Treasury press release on the GOV.UK website for their source of information on this initiative.

Phase two is of interest to many buyers as the support offered is not dependent on the purchaser buying a newly built property.

Instead of the interest free equity loan support offered to new build buyers in phase one – support in phase two is offered directly to Lenders to encourage them to provide a wider range of low deposit mortgages.

These mortgages can be used on existing housing stock as well as new build.

Watch how you read the Help to Buy information

The Government webpage (link above) regarding phase two of the Help to Buy Scheme is clearly labelled ‘Help to Buy: mortgage guarantee available 3 months early’. On the page the Treasury outlines the basis of phase two of the Help to Buy Scheme.

They also confuse matters however by referring on the same page to details of phase one of the scheme which was launched after this year’s budget.

Announced by the Chancellor at Budget 2013, the Help to Buy scheme has two parts, equity loan and mortgage guarantee.

Under the equity loan scheme, the government provides a loan of up to 20% of the value of a new build home, interest free for the first five years.

This could give the impression that yesterdays announcement (widely heralded as opening Help to Buy to existing housing stock) also offers the 20% interest free loan element to existing housing stock.

This is not the case.

A number of our clients have fallen into this trap over the weekend, for example, one with £200,000 (30%) deposit understood he could now take a 20% interest free Government loan and reduce his mortgage to 50% loan to value.

Not just Government misinformation

Confusion is everywhere, on National Radio news last night the newscaster said the ‘announcement means extra support for those with only 5% deposit’. In fact it should assist buyers with deposits of up to 20% as the mortgage guarantee indemnifies the lender against 95% of losses down to 80% loan to value in the event of repossession.

Key things to remember

  • The Help to Buy scheme comes in two parts which do not mix
  • Phase one works on new builds only
  • Only Phase one (the Equity Loan Scheme) offers an interest free loan of up to 20%
  • Only Phase two (the Guarantee Scheme) can be used on existing housing stock
  • Phase two supports the lender (not the buyer directly) by encouraging new mortgage products onto the market
  • Less than ten lenders offer mortgage products for phase one, it is unclear how many will offer products for phase two
  • Options under phase two will be driven by the mortgage products that come onto the market in the coming weeks and months
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