Help to Buy – Is There A Time Bomb Looming
New Mortgage Products
Under its Help to Buy scheme, the government provides equity loans to first-time buyers and second-steppers of up to 20% of the purchase price of a new-build property of up to £600,000. A London-only version of the scheme provides 40% equity loans.
The scheme, which was introduced back in 2013, means that borrowers need only a 5% cash deposit, while taking out a 75% mortgage which is topped up by the government’s 20% equity loan. The 40% loan limit for Greater London homes came in during 2016.
In return, the borrower must pay the loan back plus a share of any increase in the property’s value. After five years, borrowers are required to start paying interest at 1.75% on their Help to Buy equity loan, rising each year by retail price inflation plus 1%. The alternative is to pay the loan off, but this usually requires the borrower to remortgage which means they need to have built up equity in the property.
Many Help to Buy customers will have relied on house prices continuing to rise; however, new-build homes don’t always increase in value at the same rate as other homes, so the amount of equity available could in some cases be small.
Calculating the costs
From April, borrowers who took advantage of the scheme at launch will have to start paying 1.75% interest on their government loan. This comes on top of a borrower’s other bills such as their mortgage, and at a time when wages are rising only slowly.
New mortgage products
Homeowners faced with the choice of remortgaging or paying expensive loan fees will be pleased to know that new mortgage products designed to meet the needs of Help to Buy borrowers, are coming to the market. These offer borrowers a remortgage option that removes the equity element of the loan and effectively gives them ownership of the whole property.
If you are in this position and would like some advice on the right remortgage options for your financial circumstances, then please do get in touch. We have a team of specialist Swansea mortgage advisers with a track record of finding the right mortgage at the right rate - and we don't take forever to sort it for you! We can scour the whole of the market, all sorts of high street, independent and niche providers to find the best mortgage deal for you. Mortgages, borrowing and commercial lending are what we do!