Guide to Help to Buy
The Help to Buy scheme aims to help a range of different types of buyers, and is made of two components:
1. An equity loan for new-build property
Under Help to Buy, any borrower, be they a first- or subsequent-time buyer, with any level of income and a 5% deposit is given an equity loan of up to 20% of the property’s value to buy a newly-built home worth up to £600,000.
They then take out a mortgage for the remaining 75% from a participating mortgage lender.
The equity loan is interest-fee for the first five years, and the Government, which has a 20% stake in the property, shares in any increase or decrease in the value of the property.
In March 2012 the Government pledged £3.5bn to this part of the scheme, in a bid to boost homebuying and housebuilding.
2. An indemnity guarantee against higher loan-to-value mortgages
The second part of Help to Buy is more complicated, and involves the Government setting up an indemnity guarantee which promises to refund mortgage lenders for the losses they might incur if a borrower to whom they have lent a high loan-to-value mortgage (over 80%) defaults.
The hope is that this indemnity will encourage mortgage lenders to offer more deals above 80% loan to value.
Whether or not this happens remains to be seen, as it will be affected by the small print.
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