Help to buy – Can it help you?

The Help to Buy Scheme has gained a lot of popularity in recent months, it was designed to help both existing home buyers as well as first time buyers.  The Scheme generally applies to newly built properties up to the value of £600,000 and enables homebuyers to purchase a new home with as low as a 5% deposit, utilising  a 20% loan provided by the Government Equity Loan Scheme

As a consequence, there is a perceived low risk for the bank lender who of course has security over the first 75% of the value of the property if they are forwarding a mortgage.  The Government itself is taking the risk element between 75% and 95% with the riskiest 5% slice being the actual deposit of the prospective purchaser.

The Government Equity Loan is limited to a five year period.  It is assumed that if prices increase and with a repayment mortgage in place, the entire outstanding loan with risk will be comfortably covered by a new mortgage as some of the equity itself would be paid off.

Most medium and large scale developers are using the Scheme, which is becoming more popular to help people get a foot on the property ladder with a low equity stake.  It is also, however, to be noted that some people believe that making it easier to buy increases house prices and results in extra houses built by  developers due to the artificial stimulus of the Government Loan Scheme.

Whether this is a negative will depend on the next few years, when prices may stabilise at a strong rate of growth, underpinned by increased house construction and enabled consumer demand, or deflate rapidly as the bubble bursts.

LCB                                                                                                                                     10.02.14

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