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Help to Buy - more options available if you want to move home
8:00am Thursday 24th October 2013 in Lifestyle
This month Mitch Hopkinson, a winner of the Financial Adviser, a Financial Times publication, ‘UK Independent Financial Adviser of the Year’ award, discusses the next phase of the Help To Buy scheme.
With the ‘roll-out’ forging ahead, and further to last month’s question on the subject, I thought it relevant this month to focus on the next stage of the UK government’s initiative to get the housing market moving.
The new scheme is quite straightforward. The government will make the difference up to your mortgage provider if you get in to difficulty and there isn't enough capital to repay the debt. For this guarantee, the banks pay a charge to the government. In return the mortgage providers are, essentially, passing this charge onto consumers through increased mortgage rates. Currently the following (mainstream) banks have agreed to support the scheme: Bank of Scotland, Halifax, NatWest and RBS. More are expected to be announced shortly.
The first version is still available for new buyers and is probably better in some respects than the new version. I say this first version is ‘probably better’ because the borrower is receiving, in effect, an interest free loan for five years, which means that you pay a mortgage on 75 per cent per annum not on 95 per cent as will be the case with the new scheme. In the first version of the government backed scheme, the opportunity is in the fact that after five years (of paying the new mortgage), you should be in a position that your salary/ income has been rising (each year) so in five years, you could then be in a better position to take on the full 95 per cent mortgage repayments. In the meantime, you could have tried to save the difference in what you would have been paying to help pay down some of the capital after the five years. However, it should be remembered that you are limited to repaying 10 per cent or the full amount of the loan at a time. But, you could always re-mortgage at that time to repay the whole amount and move to a new lender.
To qualify for the mortgage guarantee scheme, you must pass lender affordability checks and have no history of difficulties in meeting other debt payments.
In order for your mortgage to be eligible for the mortgage guarantee scheme: • it must be a residential mortgage, so you will be planning to live in your house and not rent it out; • the property you want to buy must be in the UK and the purchase value must be £600,000 or less; • the mortgage must be taken out on a repayment basis, rather than interest-only; • the mortgage must be to buy your only property, so you cannot have an interest in any property, anywhere in the world; and • the mortgage cannot be for an equity loan or shared ownership purchase.
Remember, the new scheme works by offering lenders the option to purchase a guarantee on mortgages where a borrower has a deposit of between 5 per cent and 20 per cent. This encourages lenders to increase the availability of high loan-to-value products. This should act to get the mortgage market moving, that in turn should lead to more homes being built.
So on balance, if you are considering moving, you now have more options available to you. One of the new government backed schemes may be right for you but, equally, it may be that you would be better not using them at all. What is essential is that you seek expert, independent advice on which option is right for you.
- Mitch Hopkinson is a managing partner of deVere United Kingdom, part of the deVere Group, the world’s largest independent financial advisory firm.
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