30 Oct 2013

Attention all buyers: do you need Help to Buy?

Attention all buyers: do you need Help to Buy?

Allan Gardner, Financial Services Director, provides an overview of two new schemes for home buyers which are designed to increase activity within the property market.

Allan Gardner, Financial Services Director, provides an overview of two new schemes for home buyers which are designed to increase activity within the property market.

The last few weeks has seen an attempt to breathe new life into the Scottish Housing market with the launch of two new initiatives to help people get onto and up the housing ladder with only a 5% deposit needed!

Ministers are allocating £220m over three years for the Help to Buy (Scotland) Scheme, an investment which has been warmly welcomed by house builders.

Through the Scottish Government, eligible buyers will be provided with an equity loan of between 10% and 20% of the purchase price of a new build home, up to a maximum price of £400,000.

Purchasers will require to raise funding (including a mortgage and deposit) of at least 80% of the property value, with the minimum deposit being as low as 5%. Given the current lack of availability of 95% mortgages on the market the hope is that the scheme will allow more buyers to obtain mortgages without any great risk to the lenders.

So far, not every lender has subscribed to the scheme meaning it is more important than ever for buyers to seek expert independent financial advice.

In practice, the scheme will operate by way of an interest free loan provided by the Scottish Government. When the property is eventually sold, the percentage repayable will be calculated on the greater of the price and the market valuation at the time of sale. If the property decreases in value the Scottish Government will not seek to recover any shortfall in their equity thus lessening the risk to a purchaser.

An example of how the Help to Buy (Scotland) Scheme works is as follows:

Purchase price £120,000
Mortgage £90,000 (75%)
Deposit £6,000 (5%)

Equity loan £24,000 (20%) provided by the Scottish Government

Sale after 5 years
Open market value £150,000 (a 25% uplift in value).
Mortgage repayment (assuming no repayment of capital) £91,200.
Equity loan 20% of the open market value = £30,000

Remainder available to purchaser £28,800.

In addition to this scheme Help to Buy 2 was launched which effectively is offering prospective buyers the chance to borrow up to 95% for second hand properties.

Whilst there have been some 95% loans available in the market place it is envisaged that this initiative will make it easier for more people to access funds for house purchase although a pre-requisite will still be a minimum 5% deposit and a good credit record.

Help to buy 2 cannot be used for new build properties but does have the benefit of allowing the buyer to retain 100% of any profit ( or suffer a loss !) on sale of the property so it is a much more conventional way of purchasing your next or first home. You can also buy property up to £600,000 using this version.

It cannot be used to buy property for rental properties or investment purposes and is expressly hoped that both these schemes will see a higher number of people getting on the housing ladder and moving home with confidence.

One major benefit for Help to Buy 2 will be that this is not reliant on the Government (through a local housing association, LINK etc) advancing funds so it is likely to be quicker to get a decision but because it is 95% loan to value  lending the interest rate charged will be higher so there are advantages and disadvantages with both schemes which have to be considered carefully before buying.

At present very few lenders are participating in Help to Buy 2 but more are expected to join as time goes on.

Both schemes are open not just to first time buyers but also next time buyers .In order to qualify, a buyer must be purchasing the property as their sole residence and must not own another home. Not every house builder has registered for the new build scheme making it vital that prospective purchasers seek expert advice at the earliest opportunity. It may be the case that neither of these schemes is the best option for your own circumstances so professional independent mortgage advice is needed before you commit to what might be one of the biggest purchases of your life

If you are interested in the learning more about either of these schemes or are unsure if you are eligible, Aberdein Considine have a dedicated team of mortgage advisors and solicitors with unparalleled expertise in the new build mortgage and legal market. Funding for the scheme is limited so call us today on 08450 230230 for an appointment.

Allan Gardner, Financial Services Director


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