What is the Help to Buy scheme?
Help to Buy will take two forms: one part offers buyers an interest-free loan from the government; the other involves the government providing a guarantee to underpin a borrower’s mortgage.
Both will be available for homes worth up to £600,000 and there will be no restriction on how much applicants need to earn in order to qualify.
How will the loan scheme work?
The interest-free loan will be offered from 1 April 2013 and will be limited to people who want to buy a new-build property. It is similar to the existing First Buy scheme, but this time it is available to existing homeowners as well as first-time buyers.
Borrowers will need to raise a deposit of 5% of the value of the property they want to buy, but can borrow a further 20% on an interest-free basis from the government. The biggest loan available will be £120,000.
The state-backed loan must be repaid when the property is sold. It can be repaid earlier, but only if the mortgage is paid off at the same time.
After five years it will attract an interest fee of 1.75%, which will rise annually by the RPI rate of inflation plus 1%.
The Treasury says the £3.5bn scheme will help up to 74,000 buyers. Anyone who is interested in using it needs to contact a participating housebuilder or HomeBuy, which oversees affordable housing schemes.
How will the guarantee scheme work?
This part of the scheme, which will be available from January 2014, will help you buy either a new or existing property. Again, you will need to raise a deposit of at least 5% but no more than 20% (if you have a bigger deposit, you should have a good choice ofmortgages anyway).
The government will provide the lender with a guarantee for up to 15% of your loan, allowing it to offer a mortgage even though you have a small deposit. More details will be announced later in the year.
Has the government done enough to iron out confusion?
No. The mortgage guarantee scheme remains unclear, for instance. As well as not knowing who will qualify, we don’t know how much lenders will be charged to use it.
A lack of clarity might be expected of a policy that does not come into place until next year and has not been through a consultation process.
However, the Treasury does seem to have been caught out by some of the questions raised by its own document outlining the scheme.