Q&A Government Help to Buy Mortgage Scheme

Q&A Government Help to Buy Mortgage Scheme

The government says that its Help to Buy scheme will assist people across the UK trying to get on the housing ladder who can afford mortgage repayments but are struggling to raise a deposit.


What is the scheme?

The first phase started in April in England. This saw the government offering a 20% equity loan to buyers of newly-built properties. These buyers must offer a 5% deposit.

The second phase of the scheme, originally planned for January 2014, has been brought forward so mortgage products are available from now.  Under this system, borrowers across the UK can put down a deposit of as little as 5% of the property price. It is available for properties sold for up to £600,000 in the UK, and for new homes and resale properties. The scheme is expected to continue for three years. The lender offers a mortgage covering the other 95%.


How does it work?

Lenders can sign up to the Help to Buy scheme and pay a fee to the government, which will provide a seven-year taxpayer guarantee covering 15% of the loan value. That guarantee can be called in if the borrower defaults.


Which lenders have signed up so far?

RBS and Lloyds Banking Group - both of which are taxpayer backed - are participating in the second phase of Help to Buy. Smaller lenders Virgin Money and Aldermore have announced that they will be involved as well, from January.

Barclays, Santander and Nationwide Building Society are all still undecided.


Am I eligible?

To qualify for a Help to Buy mortgage guarantee, the home you want to buy must:

The property can be newly built or already existing.


You don’t have to be a first-time buyer and there’s no limit on your level of income. But you can’t use Help to Buy with any other publicly funded mortgage scheme, or an interest-only mortgage.


How much do these mortgages cost?

A few lenders have started to reveal the pricing of these 95% mortgages. RBS and NatWest are offering a two-year, fixed-rate mortgage starting at 4.99% for those with a 5% deposit, with no fee.  Halifax will be taking applications in a few days at a rate of 5.19% with a £995 fee for those with the same deposit.

That is relatively competitive compared with prices outside of Help to Buy, although borrowers are likely to get a better deal if they save up longer for a deposit. These 95% mortgages have all but disappeared from the market since the start of the financial crisis.


What do I need to do next?

If you’re interested in finding out more, arrange a meeting with one of the lenders, tell them you are interested in the scheme, and they can run through with you in a bit more detail.  Then comes the exciting bit....looking for your home.