What Are the Ins and Outs of Help to Buy?

For what seems like an eternity, those aspiring to get onto the property ladder for the first time have seen their dreams dashed as a result of astronomically high house prices. Even paying a deposit of around 10% or less of a home’s value is too much for many hopeful house-hunters, but could a scheme devised this year by the government make this scenario a thing of the past? 

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Help to Buy, created to help homeowners and the housing market, was launched amid a huge amount of fanfare. Both the government and their supporters believed that it would help to make homeownership an affordable dream once again, but how does it work, and what, if any, are its most obvious flaws?
Sketchy details

The scheme is composed of two strands, with one of them already underway. They are:

Equity Loan

  • The loan, provided by the government, is equivalent to 20% of the home’s value providing that a deposit of at least 5% of the home’s value is paid
  • Only new-build properties with a value below £600,000 are eligible
  • Participants must prove they have a good credit history
  • For first-time buyers only

Mortgage Guarantee

  • Due to start in January 2014
  • The government set to put £12bn of funds towards total guarantees from lenders of around £130bn
  • New and old properties under £600,000 eligible
  • First-time buyers and existing homeowners are eligible to take advantage of the Guarantee

Regarding the Mortgage Guarantee, the details of how it will work in full are a little sketchy as the government and participating lenders take into account how the housing market might react. In the meantime, a number of people have raised concerns about whether Help to Buy might cause another housing bubble with Business Secretary Vince Cable among them.

Lenders responding

Whatever the issues surrounding Help to Buy might be, it seems that a handful of lenders are beginning to be a little less cautious when it comes to providing mortgages. Chief Executive Chris Pilling from Yorkshire Building Society, spoke positively of how they had loaned out over £900m in the first quarter of 2013:

“Our fundamental aims as a building society – helping people to save for the future and buy their own home – are unwavering and being so closely rooted in our communities makes us ideally placed to achieve them.”

“Net lending has been solid so far this year and we strongly expect this will increase further in the second half of 2013.”

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