Equity loan schemes-Help to Buy
Help to buy belongs to a group of equity loan schemes; these are schemes which are to help first time buyers to subsidize part of the deposit by a governmental agency. Such scheme helps people who wish to buy a new property but they do not have enough deposit. Before ones apply for such subsidy ones must ensure full understanding of all implications related to the Help to Buy scheme. It was initially reported that over £180 million would be allocated from the government budget to support the scheme with the view of facilitating many buyers to settle in about 10500 new built houses.
With Help to Buy scheme buyer finance 80% of the purchase price, 5 % of which is buyers own deposit and 75 % is a mortgage, the remaining 20% is a loan from the governmental agency. Those who are interested in the participation in the scheme first of all should meet their financial adviser to assess their financial situation and to check if all scheme requirements are fulfilled. Next step is go to the website:
http://www.helptobuy.org.uk/equity-loan/find-helptobuy-agent or visit your local Help to Buy buy office in order to fill in the application form. After having your application examined positively you are enrolled on the approved list for people who are ready for the transaction. After five years from purchase you start repay an interest on the first 20 % equity loan; the important fact is that during the first five years the loan is not charged with any interest. After five years the interest is 1. 75 % corrected annually with the inflation rate plus 1%.
What estate can you buy?
The choice of the properties can be limited with the following criteria:
A house must be new and its price cannot exceed £ 600,000
The building company must be been approved by Home to Buy Scheme (the register of companies at Hampshire County is on: www.homesinhants.co.uk)
Who may apply for a participation in Help to Buy scheme?
The Help to Buy agent will assess your ability to participate in the Help to Buy scheme part 1. In order to proceed with the application you should visit your local Help to Buy branch or download the application form by visiting:
These are some main requirements to meet:
The scheme is available to first time buyers as well as homeowners (however you must not own any other property at the time you buy your new home with Help to Buy equity loan)
Income of a household cannot exceed £ 60,000 annually
Gross receipts of a household should not be lower than £18,000 annually
A buyer should have enough savings to cover the purchase costs
The person must be able to secure a mortgage
What if you want to sell your property?
In Help to Buy scheme you receive 20% of equity from a governmental agency but you are still the owner of the whole property. You have the right to sell it on the open market without any restrictions but mortgage and the remaining 20 % must be repaid at the time of property sale.
A sample of Help to Buy scheme
Market price of a house £ 200 000 – 100 %
Mortgage (75% of the market price) £ 150 000 – 75%
Required deposit (5%) £ 10 000- 5%
Byuer’s share £ 160 000- 80%
Governmental agency contribution (20%) £ 40 000 – 20%
This example shows that you buy a house for the price of £200 000 with your own deposit in the amount of £10 000 and a mortgage in the amount of £150 000. The Governmental Agency will subsidize £40,000 and that allows you to buy the whole property.
Help to Buy part 2
It is not a great surprise that for most people who want to buy their own property the biggest disadvantage might be the lack of their own large deposit. The present government realises the arising problem and puts forward more and more modern projects in order to increase the availability of mortgages with a low own deposit. The latest governmental initiative seems to be very interesting. Help to Buy Scheme part 2 enables to buy property with a five percent deposit but contrary to the first edition of Help to Buy, the choice of the property is not limited only to newly built houses but it enables to buy a house in an open market. People who buy the property for the first time as well as those who have already owned their house or flat before may participate in this scheme. The principles of this scheme are quite different from the first edition of Help to Buy. In the second edition of this scheme there is no equity loan from the governmental agency. Instead there is Mortgage Indemnity Guarantee in place.. In case if the borrower stops repaying the mortgage, the government guarantees to cover part of the obligation and this reduces the risk taken by the lender. It is worth mentioning, that mortgage indemnity guarantee does not exempt from the liability to repay the whole amount of mortgage. A person who takes a mortgage with a five percent own deposit is fully responsible for its repaying it and the governmental guarantee does not influence on remission of any of its part.
In order to fully understand the concept of Help to Buy part 2 you must be aware that the risk taken by the lender at the time of mortgage grant depends on the client’s own deposit. The greater deposit represents lower risk for the lenders which is followed by lower interest on the mortgage. Mortgage indemnities guarantees have positive impact on the over cost and availability of 95% loan to value mortgages.