Help to Buy Mortgages
Need help to find out more about Help to Buy mortgages? This guide will tell you all you need to know about the government scheme that could help you get on the property ladder. Read on to find out more.
What is a Help to Buy mortgage?
A Help to Buy mortgage is a lot less complicated than you might think. There are two types of Help to Buy mortgage that you can consider. We'll go into them in a little more detail a little later, but here's a quick outline of the basics.
The first part is a simple equity loan, which buyers can use to contribute towards a deposit on the property. The second part of the Help to Buy scheme is a mortgage guarantee. In simple terms, it's just like any other mortgage. The only difference is that it offers to home buyers an opportunity to buy a guarantee on the home loan. Now, let's take a closer look.
Help to Buy Part One: The Equity Loan
A Help to Buy equity loan will allow homebuyers to borrow 20 percent of the property value if they can raise the funds to pay just 5 percent themselves. The loan itself is just about the cheapest borrowing you will be able to find - it's interest-free for the first five years of the loan. Even when interest kicks in, it is affordable for some years afterwards. You will be charged 1.75 percent interest in the sixth year of your mortgage, which rises a further 1% annually after that. You will also have to pay for any increases in inflation that occur.
So, in effect, homebuyers can look for a more expensive property than they could normally afford, thanks to the 25 percent deposit. They can also find themselves much more competitive mortgages on the market. The more equity you have when buying a home, the more options you will find at a cheaper interest rate. The loan can be paid back at any time, although you have to pay it as a lump sum of 10 or 20 percent. The credit is available for any property up to a value of £600,000 - but it must be for a new build home.
Most of the major banking institutions and building societies are taking part in the scheme. Participants include Barclays, NatWest/RBS, and Santander. Head over to the government's Help to Buy pages for a full list of lenders taking part, and more information on where to find a Help to Buy agent in your area.
Help to Buy Part Two: The Guarantee
In Part Two of the Help to Buy scheme, home buyers can purchase a guarantee for homes up to the value of £600,000. It will help home buyers who can only raise a small deposit more chance of getting a mortgage.
Home buyers will need to raise 5 percent of the property's value as a deposit, and the government then guarantees a further 15 percent. So, from the lender's point of view, the home loan will be ensured regarding equity up to 20 percent. It means they will be more likely to lend mortgages of higher value.
Similar to Part One of the scheme, many different lenders are taking part. These include those listed above, as well as HSBC, Halifax and Bank of Scotland, and Virgin Money.
You will still need to pass credit checks for both parts of the scheme and prove that you can make the mortgage repayments.
We hope this has helped you understand some of the basics of the Help to Buy scheme. As we mentioned above, visit the government's Help to Buy information page for more details.