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Mortgage

How the Government’s Help to Buy mortgage scheme works

For what seems like an eternity, home ownership has seemed like nothing more than an unaffordable dream for millions of people in the UK. A combination of stagnant incomes and, more worryingly, sky-high property prices have made it difficult for many to even get together the necessary funds to pay a deposit, which can often equate to between 10-20% of a home’s value.

Fortunately for those who want to get on the property ladder but find that finance often gets in the way, a new government scheme was launched this year to make it easier for people to buy a property at a reduced rate. The Help to Buy scheme, which began in April, was introduced to help provide a boost to the housing market and help middle-class households move for less.

Two-step programme

Help to Buy has two strands which are meant to help prospective homeowners in different ways. They are:

  • Equity Loan – this allows participants in the scheme to pay a reasonable 5% deposit, while the government will provide a loan equivalent to 20% of the property’s value. For the first five years, the loan is interest free. The Equity Loan scheme has been running since April, and is only available for new-build properties.
  • Mortgage Guarantee – not starting until early next year, the finer details of the Guarantee have yet to be ironed out. What is known is that it will increase mortgage availability for buyers who pay small, 5% deposits. It’s available for new and existing properties worth up to £600,000, and is open to current homeowners as well as first-time buyers.

As a whole, Help to Buy was designed with first-time buyers in mind. As they may find it harder than most people to actually purchase a property, taking advantage of the scheme could be just the thing for them.

Lenders opening up?

As a response to the scheme’s launch, some high street lenders have increased the amount that they have given to homeowners in the form of mortgages. A prime example is Yorkshire Building Society, who loaned well over £900m in the form of mortgages for the first half of 2013, with gross lending reaching £2.5bn in the same period.

About the welcome news for first-time buyers, the building society’s chief executive Chris Pilling explained how it had happened:

“Our fundamental aims as a building society – helping people to save for the future and buy their own home – are unwavering and being so closely rooted in our communities makes us ideally placed to achieve them.

“Net lending has been solid so far this year and we strongly expect this will increase further in the second half of 2013”, he added.

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