Help to Buy scheme: a simple Q and A guide

6 Feb 2014
Published in Guides
Views 1252

There has been plenty of press about the Help to Buy mortgage guarantee scheme. So lets explain it clearly and find out what it means for you

We've all heard about the Help to Buy mortgage guarantee scheme in the news; some argue it is inflating a housing bubble, some say it is a great opportunity to get onto the property ladder. Whichever your opinion it is there and it is something you should know about as it may well make your dreams of home ownership come true.

The facts about Help to Buy

To help you learn about the Help to Buy scheme and to see if it could be useful to you we will get straight down to the facts in this simple Q and A session:

What is Help to buy?

The Help to Buy mortgage guarantee scheme is a scheme available for banks to purchase a guarantee on a portion of the mortgage they are lending. This means lending a borrower a high loan to value mortgage, for example a 95% mortgage, a less risky investment for them.

What does that mean for me?

Since this makes mortgage lenders feel more confident with their lending, more high loan to value mortgage are now available, i.e. a greater number of 80-95% mortgage are available now. Also, with greater availability and less risk, lenders have started competing for borrowers by slashing interest rates on these types of mortgages.

An example

You want to buy a £200,000 house. You have a deposit of £10,000 which is only 5% of the value of the house. You approach a bank to lend you the remaining £190,000. The mortgage lender agrees to lend you that mortgage but also decides to get a guarantee on £30,000 of that loan.

Who do I owe the £190,000 to?

The bank and only the bank. The help to buy mortgage guarantee was an agreement between the government and the bank. You must now pay your monthly repayments each month to the bank.

Do I need to apply?

No, there is no application necessary which is probably the biggest surprise. To get a mortgage under this scheme you simply apply for a mortgage in the usual way. There is no fee to pay the government either.

Are all 95% mortgages under the scheme?

Not necessarily. If a bank is offering you the right kind of mortgage at a good deal for you then go for it. It really shouldn't matter to you as a borrower if the mortgage lender is applying to the government for a guarantee on part of your mortgage.

Is it just for first time buyers?

No, it is for home movers as well as first time buyers.

Is it only available on new houses?

No, houses new or old are available for Help To Buy mortgage guarantee scheme.

So can anyone get a Help to Buy mortgage?

No. You cannot be a part of the scheme if:

  • you already own a house anywhere in the house and intend this to be your second or greater
  • the house has a value over £600,000
  • you intend to let the property
  • you are buying not as an individual but as a company
  • you are using this in conjunction with another government scheme such as equity loan or shared ownership
  • your deposit came from a government scheme
  • you want an interest only mortgage, you must get repayment only
  • you want an offset or guarantor mortgage

Great news!

We think it is. If you think now is the time to get on the property ladder and you have a small deposit, now is the time to make the move. The scheme plans to run until the very end of 2016 so you have 3 years to start saving a deposit for a house!

If you are inspired to go for it remember to give our neighbourhood discovery engine a try to find the best neighbourhood for you to live in based on your demographics and interests

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