The Budget brought mortgages back into the spotlight with the announcement of the extension of one government scheme and some new help for homebuyers. But what are they, how do they work and who can benefit from them? Here I have tried to sort the wheat from the chaff and explain exactly what is on offer.
Help to Buy Scheme
FirstBuy, also known as NewBuy, has been around for a while now on selected new developments for first time buyers, but has now been extended to all buyers so long as the property they are buying is valued less than £600,000 (so not a worry for most!). Significantly it offers an opportunity to move for those second time buyers and 'mortgage prisoners' many of whom bought in the boom years and lost their equity and/or financial stability during this recession.
In a nutshell it works like this: applies only to new build properties, the borrower puts in 5% deposit, the government then provides an additional 20% as an equity loan which is paid back when you sell, you then obtain a 75% mortgage for the remainder. The scheme launches to all on 1st April (it's no joke!) and runs for three years.
Mortgage Guarantee Scheme
An extension to this is the Mortgage Guarantee Scheme, from January 2014 it can apply to any property (old or new) for anyone. Again this runs for three years from inception but there is an option for the Bank of England to extend it. The borrower puts in between 5 & 20% and the government guarantees up to 15% of the loan with the same principle as FirstBuy, maximum £600k purchase price again. This scheme should increase pressure on the lenders to offer more to borrowers with lower deposits too. With both these schemes the devil will be in the detail and over the next week or so we should see how mortgage lenders react in terms of rates and criteria.
Right to Buy
Also announced was that Council tenants will now be able to have the 'Right To Buy' their home after just three years rather than five and council tenants in the London boroughs will now receive a maximum £100,000 discount rather than the £75,000 previously offered, and still on offer elsewhere, to reflect inflated London values.
On the face of it the above schemes are good news for many who have been given little opportunity to get on the housing ladder in the past five years or so. We'll see how these bed in over the coming weeks and months how many will benefit and whether it will stimulate the housing market sufficiently.
Dean Mason - Cemap, Cert PFS. Practice Principal Masons Financial Planning.
