On the 20/03/2013 the Chancellor announced a new scheme to boost the housing market. The government have allocated £12bn of guarantees to enable £130bn of mortgage lending over three years.
The Help to Buy Scheme is designed to promote lending at high to value, including 95% mortgages with a maximum purchase price of £600,000. It will include first time buyers, home movers and remortgages though this criteria could change.
At present on a 95% mortgage some lenders protect themselves from the increased risk of loss on repossession by insisting the purchaser paying a Higher Lending Charge. This insurance policy will pay the lender the difference between the amount borrowed and the sold price in case of repossession.
The Help to Buy Scheme lessens the risk to the lender as the scheme underwrites 14.25% of the value of the property. On a purchase price of £120,000 the purchaser would still fund a £6000 deposit while government would underwrite £17,100 against default.
The three hoped for benefits of this scheme are:
1) More lenders will be encouraged to lend at 95%.
2) The lenders will offer more competitive rates.
3) Higher lending charge will not be required.
This scheme is aimed to be introduced in January 2014 but as there are ongoing negotiations with the FSA and lenders so this could easily get deferred.
We will update on the progress of the Help to Buy Scheme in future blogs.
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Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage
By Neil Soundy
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