The Government has announced the second phase of its controversial Help to Buy scheme which is to be launched on Monday 7th October 2013, three months earlier than scheduled. The Mail online have published an initial list of answers to commonly asked questions to help you understand exactly what the Governments Help to Buy scheme can offer you if you are looking to buy a house or flat to buy in Sheffield.
The Mail says that the mortgage guarantee scheme, which is designed to help first-time buyers and existing property owners move up the housing ladder, will allow borrowers with a 5pc deposit to buy property worth up to £600,000. The Government will guarantee up to 15pc of the loan at a cost to the lender, allowing the borrower to access cheaper mortgage deals. It has set aside £12bn of guarantees for up to £130bn of mortgage lending and the scheme will remain open for three years to January 2017.
The Mail have laid out a number of initial questions and answers which they will be updated regular as the scheme launches and develops.
Q. How quickly could the Government’s £12bn pot run out?
This depends largely on how many lenders sign up to the scheme. If all the major banks and building societies participate, the £12bn funding for the guarantees will be spread more thinly than if just a handful are involved. Wide take-up will also encourage lenders to offer more competitive rates, which will make the scheme more attractive to borrowers. RBS-NatWest said it would aim to lend to 25,500 buyers through the scheme. Andrew Montlake, a director of mortgage broking firm Coreco, said it was difficult to tell given the wide range of unknown factors but if all the major lenders get involved it is possible the Government’s funding could be used up within the first 12 months.
Q. Which lenders have signed up so far?
The two banks part-owned by the Government are, unsurprisingly, signed up already. That is Lloyds, which owns Halifax, and Royal Bank of Scotland, which owns NatWest. RBS’ incoming chief executive, Ross McEwan, was dutifully supportive. He said: “We are committed to helping as many people as possible acrossBritain to get on with their lives, to buy their first home, to move to a bigger house as their family grows. That’s why RBS fully support the Help to Buy mortgage guarantee scheme and we welcome news that it will be launched soon.”
A third lender, Aldermore, committed to offering the Government’s Help to Buy mortgage guarantee scheme on Wednesday, but said it will not launch products until next year. Aldermore accounted for 0.3pc of the mortgage market in 2012. It said it will not be able to bring forward the launch of its products to coincide with the early start date and will continue to work to the original January timeline.
Participating lenders will be able to approve loans from next week but will not be able to access the Government guarantees until January, when the scheme was due to launch. This means borrowers will not be able to complete until January 2 at the earliest, which could cause significant problems for buyers and sellers.
Some mortgage lenders are reported to be wary about participating in the scheme until more details are released about the costs and benefits for lenders. They want to know how much the Government will charge lenders to take part and what administration and IT systems will be required. Lenders also want to know what level of relief they will receive on their capital requirements in exchange for taking part. This is the amount they must hold in capital reserves on their balance sheets. Mortgage lenders are also concerned about the risks of lending money at a loan-to-value of 95pc. After the 2008 financial crisis banks were criticised as “irresponsible” for lending more to people for mortgages than they could afford.
Paul Broadhead, head of mortgages at the Building Societies’ Association, said about one in three building societies offer mortgage deals underpinned by guarantees from private insurance firms, adding these lenders are unlikely to sign up to Help to Buy.
“These arrangements deliver many of the same benefits as the government scheme will and the societies involved are likely to carry on because it will be too much effort to switch,” he said. Ray Boulger, of mortgage broker John Charcol, added it is unlikely that many lenders will sign up to the scheme over the next few months. He said: “I don’t believe any of the other lenders are even close to deciding whether to participate, and if so on what basis.”
A. What will happen to house prices over the next few months?
House prices are rising across the UK. Last week, figures from Nationwide Building Society showed all 13 UK regions saw annual house price growth in the third quarter, including Houses and Flats for sale in Sheffield. With the average property now rising in price by 5pc per year. This is expected to continue in the coming months as more people have access to mortgages, which will further stimulate the market, certainly a trend that Belvoir! Sheffield have been noticing over the last month since we entered the Sheffield Housing Market. Critics say Help to Buy, which launched a shared equity offering in April, is artificially pushing up house prices and could cause the next housing bubble.
Q. How will the scheme affect mortgage rates?
Borrowers who use the scheme will present a lower risk to lenders because the Government is guaranteeing up to 15pc of the loan. This will allow lenders to give them a cheaper mortgage, however they are unlikely to get the same deals as someone who has a track record of saving a large deposit. It is expected those using the scheme with a 5pc deposit will be offered similar rates to borrowers who have saved a 10pc deposit. This will depend however on how much the Government charges lenders for the guarantee, which has not yet been announced.
Q. What rates can be expected under Help to Buy 2?
There are still a lot of unknown factors at this point and RBS and Lloyds said they have not yet decided how much their products will cost. Experts are predicting the rates are likely to sit between 4.5pc and 5pc for a two-year fix at 80pc loan to value.
The best 80pc deal (20pc deposit) currently available on the market is a 2.39pc two-year fix from West Bromwich Building Society, according to Moneyfacts.co.uk.
Q. Will I be able to take out a mortgage next Monday?
Borrowers will be able to apply for a mortgage from next week and participating lenders will be able to approve mortgages, however borrowers will not be able to complete until January when the Government guarantee is issued.
Q. What are the key differences between Help to Buy 1 and 2?
Help to Buy 1 allows people taking their first step onto the property ladder to borrow up to 20pc of the value of a newbuild home from the Government, interest-free for the first five years.
Borrowers need a 5pc deposit and must take out a mortgage to cover the remaining 75pc of the cost of the property. After the five-year interest-free period ends, borrowers will be charged a fee of 1.75pc of the loan’s value. This fee will increase every year at 1pc above inflation. These fees only count toward the Government loan and come on top of the mortgage repayments. Borrowers must pay back the equity loan when they sell the home or at the end of the mortgage period – whichever comes first.
Help to Buy 2 will be available to both first-time buyers and existing home owners buying newbuild and older properties. Borrowers will need a 5pc deposit, while the lender will be able to buy a guarantee from the Government covering up to 15pc of the value of the property. This will make it less risky for lenders to offer a mortgage to a borrower with only a 5pc deposit and should enable them to offer cheaper rates. Both phases of the scheme are available on properties worth up to £600,000.
The Help to Buy scheme will add an additional element to an interesting market that is already certainly picking up and is seemingly active across all of Sheffield, whether you are looking to buy a house in Crookes, Hillsborough, Heeley, Nether Edge, or Sheffield City Centre.
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Taken from: http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/10343793/Help-to-Buy-Key-questions-answered.html
