Help to Buy
Helen Cherry, Solicitor at Graham & Rosen discusses … Help to Buy ... the difference between Developer, Government and the Bank
Buying your first home can be a daunting prospect, with the ever-growing process it can sometimes seem out of your reach to save enough for a deposit.
Previously lenders would assess how much you could borrow based on a multiple of your salary, however most banks and building societies are now looking at affordability based on your incomings and outgoings and your credit score, this has offered some flexibility in the market.
It is still true that the greater the deposit you are able to pay, the greater your access to more competitive deals, better interest rates and ultimately lower monthly repayments. But what can you do if you are simply unable to save a larger deposit?
“Help to Buy” appears to be a phrase used more and more in trying to entice first time buyers onto the property ladder, but what does this really mean and is it misleading to buyers?
There are two very different types of “Help to Buy.” The first is the Government backed scheme whereby a group of high street lenders have agreed to give buyers a 95% mortgage if they can pay a 5% deposit, the Government then guarantees 15% of the property’s value. This guarantee sits behind the scenes and allows banks to purchase a guarantee from the Government for a higher amount than the buyer can afford. There are currently 13 lenders who have signed up to this including Barclays, Halifax and HSBC, each lender has their own criteria which includes that the property must be your primary residence (not buy to let) and the property is under the lenders top value (£600,000 in some cases).
The second “Help to Buy scheme” is very different, this is offered on new build properties only and requires the buyer to pay a 5% deposit, obtain a high street mortgage for 75% value of the property and agree to a second mortgage from the developer for 20% of the value of the property. This means that you will have two registered mortgages against the property and will be paying two separate monthly mortgage repayments. A condition of this second mortgage may mean that you do not pay any interest for the first five years; however, the interest rates increase yearly thereafter and your monthly repayments could escalate so that you find it increasingly difficult to keep up with repayments which could lead to your property being repossessed.
Each scheme has its pros and cons and may well be the only way to enable you to buy your dream home but think very carefully before proceeding and separate the facts from the fiction of “Help to Buy.”
For further information on Help to Buy or conveyancing in general, contact Helen on 01482 840201 at Cottingham or 01482 323123 at our Hull office or [email protected]