MONEY MONDAY: Help! What is the Help To Buy Scheme?

So the Daily Mail app kindly informs me that David Cameron has OMG GONE MENTAL and brought the Help To Buy scheme forward by 3 months. It's going to start next week.

But before we all get up in arms at whether this is OMG MENTAL for the economy or not - let's focus on the basics:
What is the Help To Buy scheme?  And how will it affect me?




Basically - the Help To Buy scheme has been designed to help you get a mortgage on a house where you don't have a big enough deposit to normally get a mortgage.


Why has this been brought in?


Previously, mortgages require a deposit of around 25% of the house value. But with house prices rising and with the average first-time property valued at over £145,000, the average deposit required these days is looking pretty steep. 

Raising £30K on your own - although not impossible - isn't always achievable without additional help.  A lot of people won't be able to raise this amount of money without support from family, or inheritance. And David Cameron has refused to "stand by while people's aspirations to get on the housing ladder are being trashed"

A bit dramatic eh Dave?




So how does it work?

  • Buyers put down a minimum of 5% of the property value
  • The government gives you a loan of up to 20% of the value. 
  • Now with at least 25% under their belt, the buyer can then get a mortgage for the rest.
  • The second phase that's being introduced next week is where the government will underwrite 15% of the mortgage - basically, the government will guarantee 15% of the mortgage so that banks have less chance of making a loss and can offer cheaper mortgages to normally high-risk customers. Whoopee.
Sounds good..but.. there's always a but isn't there?
  • If the house-buyer can't pay their mortgage, the government (via the taxpayer) is pretty much liable for up to 20% of the losses. 
  • You aren't charged any fees for the government loan in the first 5 years of owning your house but from your 6th year on, you will be charged an additional fee which is currently set to be 1.75% of the loan value. This fee will increase each year and does not count as paying back the loan.



Pros?

People can get on the property ladder a lot sooner.

Paying a mortgage instead of rent each month means that you can eventually own the property, instead of just paying rent forever.



Cons?

There is a risk that the Help To Buy scheme will just help to increase prices further.

It's a case of simple supply and demand. And what I mean by that is:
  • If the houses are expensive and no one can afford to buy them - the price will come down until someone can buy them. 
  • If the houses are expensive and the government helps someone pay for it - the houses will stay at that price, and may even climb higher since people can now afford it.



I'm inclined to agree with the Cons. Although it would be AMAZING to own a house sooner rather than later, what we need is cheaper house prices, rather than more debt being offered to vulnerable people.

What sensible thoughts..

Saying that - in a year or so, when I start looking to buy my own place - a scheme like this will certainly look very very appealing, especially if I want to stay in London..



 Are you in the process of buying a house? Or, if you've bought your house - how did you come up with the deposit?  

  What is your opinion on the new Help To Buy scheme?  Will you be making an application anytime soon?  

  If you live in London - do you think you'll ever leave?! 

 Would love to hear about all your experiences! 

xXXXx



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