What is a Help to Buy Mortgage?
Help to Buy Mortgages are part of the Help to Buy Scheme run by the UK Government. They were introduced in October 2013 to help house buyers across the UK to access mortgages with a minimum 5% equity deposit. The scheme is available to existing owners and first time buyers who want to buy a house worth up to £600,000.
Unlike the Equity Loan Scheme announced by the Government, Help to Buy Mortgages are available for new build and existing properties. The initiative is a mortgage guarantee scheme that will help homebuyers with smaller deposits to access mortgages at more competitive rates of interest. These mortgages are not available for shared ownership or shared equity purchases, for buy to let properties or to purchase second homes.
How different is it from a traditional mortgage?
A Help to Buy Mortgage is essentially the same as a traditional 95% repayment mortgage, with the usual affordability checks and terms and conditions. Buyers will be assessed to make sure they can meet mortgage repayments and all the associated fees, including valuation fees, stamp duty and legal costs. Individual mortgage lenders will set interest rates and any fees associated with the mortgage independently of the Government.
For house buyers with a 5% equity deposit Help to Buy Mortgages may be their only chance to getting on the housing ladder. But the scheme will also benefit other buyers by creating a more competitive lending environment, meaning that those with up to 20% equity can expect a better rate of interest on their mortgage.
How can I apply for a Help to Buy Mortgage?
The process of applying for a mortgage is unchanged. You can apply through a bank, mortgage broker or independent financial advisor. There are no additional fees or charges associated with Help to Buy Mortgages. The Government has worked behind the scenes with lenders to agree the scheme and there is no additional paperwork when applying for a Help to Buy Mortgage.
What are my options?
Currently RBS/ NatWest offer two Help to Buy Mortgages up to 95% of the value of the purchased property. The first is a 2-year fixed rate mortgage at 4.99%, and the second is a 5-year fixed rate mortgage at 5.49%. Both mortgage deals are fee-free and available for first time buyers and home movers.
By the end of the year HSBC will offer a Help to Buy Mortgage up to 95% of the value of the purchased property at a competitive rate (not yet announced). The deal will be available to first time buyers, home movers and those remortgaging their properties. At the moment the bank offers to beat or match rates offered by competitors on 90% mortgages. These mortgages are only available directly through the bank.
Virgin Money and Aldermore will offer Help to Buy Mortgages at rates to be announced. Aldermore Help to Buy Mortgages will be available to homebuyers and those remortgaging. Currently Aldermore offers 100% mortgages for first time buyers (with parents or grandparents willing to guarantee their mortgage) at a rate of 5.48%. Virgin Money currently offers 90% mortgages at a fixed rate of 4.55% for 2 years with a fee of £995 and £300 cashback.
What if I have a poor credit history?
To be able to qualify for a Help to Buy Mortgage borrowers must have an unblemished credit record. Those homebuyers with three months’ mortgage arrears or overdue loan payments in the last two years will be excluded from the scheme, as will those with one or more county court judgements (CCJs) worth more than £500 in the last three years. If an individual has been declared bankrupt within the last three years, or has gone into voluntary bankruptcy, he or she is also not eligible to apply for a Help to Buy Mortgage.
Outside of Help to Buy, the Yorkshire Bank offers a mortgage up to 95% of the value of the purchased property at a fixed rate of 4.99% for 3 years. The mortgage is available for first time buyers and those who have not had a mortgage in the past twelve months. There are no mortgage fees.
You are eligible to apply for a Help to Buy Mortgage if:
• You are an existing home owner or first time buyer
• You have a minimum 5% equity deposit
• You want to buy an existing or new build property valued under £600,000
• You live in the property as your only residence
• The property is in the UK
• You borrow from a participating mortgage lender
• You have an unblemished credit history over the last 3 years.
Help to Buy Mortgage Scheme https://www.gov.uk/affordable-home-ownership-schemes/help-to-buy-mortgage-guarantees