Help to Buy equity Loan and Help to Buy Mortgage Guarantee

Budget 2013: Housing Implications

George Osborne presented the latest budget on 20th March 2013.

The government has announced two new forthcoming schemes in order to support the ‘home ownership aspirations’ of the general public.

They have been labelled ‘Help to Buy equity loan’ and ‘Help to Buy mortgage guarantee’.

The main features of these two schemes are compared in the table below:

Help to buy Equity Loan

Help to Buy Mortgage Guarantee

 

 

Available from 1 April 2013 for three years

Available from October 2013 for three years

Buyer to provide at least 5% deposit

Buyer to provide at least 5% deposit

Available to all buyers (whether first time buyers or not)

Available to all buyers (whether first time buyers or not)

Only to be used in conjunction with purchase of newbuild properties

Can be used with purchase or remortgage of any property

The Government will lend you up to 20% of the porperty’s value through an ‘equity loan’ which can be repaid at any time or upon sale of the property.

The government will underwrite part of the property value/purchase price to the mortgage lender under a government-backed guarantee

Maximum purchase price £600,000

Maximum purchase price /remortgage value £600,000

 

Some people will recall the last two attempts of the government to stimulate the housing market in the form of a Stamp Duty Land Tax reprieve for properties up to £150,000 and a Stamp Duty Land Tax (‘SDLT’) exemption for first time buyers up to £250,000.

In the past it has been the detail of the schemes which determine how many people will actually be able to benefit. Using the example of the £250,000 threshold for SDLT for ‘First Time buyers’ the definition of ‘First Time Buyer’ excluded anyone who had previously owned property anywhere in the world and also people who had owned property in certain investments such as Real Estate Investment trusts (REITs). Through the duration of that scheme I acted for two or three clients who were able to benefit and did not see any significant rush to get on the housing ladder as a direct consequence of the availability of this relief.

So what are the important details that we have yet to find out?

In respect of both of the above schemes, the mortgage lenders are able to decide upon the commerciality of lending in every case. Lenders may not lend to all of those who would like to benefit from the schemes and they are not obliged to provide mortgage funding at a favourable rate. However, it does seem likely that the scheme will encourage lenders to provide mortgages to those with lesser deposits.

In respect of the ‘Home Buy Equity Loan’, prospective buyers will want to analyse the likely cost of repaying the equity owned by the government, taking into account their own financial circumstances. Although it is stated that there will be no interest payable in the first five years, after that the loan will increase in line with the Retail Prices Index so could increase considerably more than a standard mortgage whose rates are generally linked to the rate at which banks can lend to each other. Also, in previous ‘shared equity’ schemes through Housing Associations, the buyer has been granted a leasehold interest in the property rather than the freehold, until the loan has been repaid. Even then, there may be further restrictions on the value that the property can be resold for. 

See my previous article ‘Can I make a quick profit on my Housing Association Shared Equity Property’ for my thoughts on the complexities of such leases and the obstacles to achieving the best price for them on the open market – especially if you want (or worse) need to move before:

a)            buying out the government’s share; and

b)            waiting until any period during which the government can buy the property back at an  ascertainable value has expired.

 With the above in mind, sound financial advice from an independent financial advisor before committing to either scheme is likely to be essential.

No doubt many buyers will continue to seek to rely upon the ‘bank of Mum and Dad’ in providing deposits for house purchases, especially if the detail of these new schemes reveals complicated legal arrangements which could ultimately affect resale values.

Important Note:

The above information is for general guidance and in part forms the opinion of the author. It is based on the law as at the date of this article.  It should not be relied upon in part or in whole as a substitute for independent legal advice. 

If you are considering whether you can benefit from any of the changes in the budget then please contact the writer, Adam Corcoran, who will be pleased to advise you in light of your personal circumstances. We cannot accept any liability to third parties for the incorrect interpretation or application of the information contained in this article.