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Much attention has surrounded the government’s latest attempt to help first time buyers on to the property ladder. The aptly named ‘help-to-buy scheme’ consists of two phases, the first of which was introduced in April and has already been taken up by 15,000 people and with phase two planned for January 2nd 2014, David Cameron has made the decision to launch the scheme early. In order to qualify to the scheme, homeowners require a 5% deposit, compounded with a 75% mortgage. This equates to only requiring 80% of the funds upfront. The remaining 20% is provided by the government in the form of an equity loan. This loan is interest free for the first five year. From the sixth year, a fee of 1.75% is charged and will rise by inflation plus 1%. The loan is payable back in 25 years or when you sell your property. The offer only applies to properties under £600,000 and buyers must declare that they do not have a financial interest in any other property. The initial phase was only open to those purchasing newly built properties; however from Friday 11th October this will be extended to those purchasing second-hand properties. The cost of the scheme is likely to hit £12bn as the government guarantees £130bn worth of mortgages. Critics of the scheme have suggested that it will create an unsustainable boom in house prices. There have been complaints that the focus needs to be more on increasing the housing supply. But with 7,000 people already making use of it, it’s hard to argue that the scheme hasn’t helped first time buyers who otherwise would not have been able to purchase. RBS, Lloyds Banking Group, Virgin Money and Aldermore are amongst those already offering ‘help-to-buy’ deals while HSBC have been named as the latest bank to back the scheme. 2 Year fixed-rate products are being made available at 4.99% upwards, subject to an insurance fee. These rank very competitive in the mortgage market and so take-up is expected to grow significantly. The perks don’t just exist for home-buyers. Lenders will be given capital relief, dependant on their size while the government will benefit from the income they receive from lenders, which will assist the current budget deficit.
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