Mortgage Guarantee

Help to buy mortgage guarantees are designed to help residents of the United Kingdom become homeowners

The Government has committed 12 billion pounds to the scheme to increase homeownership and also to help stimulate the economy.   The scheme is designed so that the guarantee goes to the mortgage lender directly from the Government and takes the person buying the property out of the transaction.

The specifics of how this scheme works and the benefits to home buyers are detailed below.

How does the scheme work?

With a help to buy mortgage guarantee, residents can purchase a property with only a 5 percent deposit. The Government then issues a guarantee for the remaining 15 percent.

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Why help to buy mortgage guarantees are beneficial to home buyers?

Home prices and cost of living in the United Kingdom are both exceptionally high when compared to average incomes. This is especially true in large cities such as LondonWith these high prices, it is becoming increasingly hard for residents to save the 20 percent deposit required for a home. The help to buy mortgage guarantee helps residents to purchase homes and stop renting. For many people without this help, home ownership would be difficult if not impossible.

What are the eligibility criteria?

There are several criteria that residents much meet to be eligible. Specifically the home that they are looking to purchase:

  • must have a purchase price of less than £600,000.

  • cannot be under shared ownership

  • cannot be the buyer's second home

  • cannot be rented out after it has been bought (e.g. an investment property)

Who is the help to buy mortgage guarantee for?

It is open to all buyers and not just first home buyers. Anyone moving homes is eligible, regardless of whether it is a newly built or established home. As long as the criteria above are met, then they qualify.

What lenders are part of the scheme?

While not every bank in the United Kingdom takes part in the help to buy mortgage guarantee, many of mainstream lenders do. As such, you still have a good choice of lenders. Key lenders include: Bank of Scotland, Bank of Ireland, Barclays, HSBC, Lloyds Bank, NatWest and even Virgin Money

Are there any downsides?

While there are no major risks to the borrower, the lending conditions – depending on the lender – may not be as competitive as a traditional 20 percent deposit loan. One of the reasons is that some lenders see a smaller deposit as higher risk. However, the difference is not significant. Click here to learn more about the different interest rates.

There is also the possibility of the 12 billion pound pot running out. While the scheme is proposed to remain open till January 2017 and allow for 130 billion pounds of lending, if more banks and building societies come on board, then it could dry up.

Finally, the scheme is proposed to help people get into home ownership, and also to stimulate the economy. If it stimulates the economy too much then there is a risk of a bubble forming in the housing market. While it is a small risk, this would make it harder for people who don’t qualify for the scheme. In short, for borrowers, the help to buy mortgage guarantee can help them into home ownership where otherwise it would have been difficult. Rather than having a 20 percent deposit, they can effectively buy a new property with only 5 percent down. 

If you are in the market for a property then it is well worth considering this scheme. To learn more, visit Gov.Uk’s Affordable Home Ownership Schemes. This site contains the latest information on all schemes available to new homeowners and home movers.

If you want to meet with a letting agent from Greens Lettings to discuss mortgage guarantees in more detail, you may contact us by clicking here.

 


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