Great confusion around the Help to Buy scheme. Let us help with this useful ‘Q & A’ session:-
Q: ‘What is this so-called ‘new’ scheme everyone is saying has just started last week - I thought it had been around for ages?’
A: No, there are actually two different schemes. The first one started in April: this is a shared-equity scheme based on new-build properties only. You buy a home with the help of a 20% equity loan from the government with you putting down a 5% cash deposit.
The scheme which was introduced last week is simply a mortgage guarantee scheme. This can be used to buy an older property with a 95% mortgage from a participating lender. The government will then indemnity the lender against up to 15% of the loss should you default.
Q: Are both schemes available, or does one scheme replace the old one? If both are available which do I choose?
A: Both schemes are planned to be available for three years. The shared equity scheme will be cheaper initially as the equity loan is interest-free for the 1st five years. It’s worth remembering though that when you sell, you have to repay the money you borrowed or have to repay 20% of the selling price of your property. This means if your home has increased in value, you won’t receive the full uplift in the value.
After 5 years you pay 1.75% of the equity loan each year which rises with the retail price index plus another 1%. If you want to, you can pay off the equity loan without selling, but remember it will be 20% of the current value of your home.
If you prefer, you can always pay the equity loan off in stages (it works the other way too - if the property value goes down you pay less than you borrowed).
If you want to buy an older property there is no choice on schemes: you will only be able to choose the mortgage-guarantee scheme. Your initial mortgage repayments will be higher under this scheme, but the full proceeds of the sale will be yours. You do need to be squeaky clean financially to qualify - no county-court judgements against you, or bad credit history.
Q: Do I have to be a first-time buyer?
A: No, both schemes are open to people trading up to a ceiling of £ 600,000. You can only own one home (not open to second home buyers)and it must be the only home you own in the world - so if you have a swanky pad in the Bahamas already you won’t count! If you fancy buying a 2nd property after you have bought under this scheme, you will have to repay the loan first.
Q: Who will check if I do own another property?
A: I know what you’re thinking! You will have to make a formal declaration and if you lie you will be liable for criminal prosecution - if you get caught you will have to repay the loan in full immediately which could mean losing your home. It’s not worth it!
Q: If I am buying a property with somebody else, can I use the scheme? And what happens if that relationship breaks down?
A: If you both meet the eligibility criteria, then you can buy under the scheme. If you have a shared equity loan and your partner wants to sell their share, they will have to apply for a Deed of Release freeing them up from any further payments when you sell the property.
Q: Say I want to move in 5 years time and want to keep the property I bought using this Help to Buy scheme, can I let it out?
A: No. You can’t let a property out if you have a Help to Buy mortgage or loan, so you would have to repay the equity loan or guaranteed mortgage first. There may be exceptions if you are in the armed forces and posted abroad.
If you buy under the shared-equity scheme you will be allocated a ‘post-sales HomeBuy agent’ for advice.
Q: What if I want an interest-only mortgage for a Help to Buy property?
A: You won’t get it! It must be a 100% repayment mortgage.
DOMVS: 16th Oct 2013 13:46:00