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Help to Buy - a Useful Guide

You may now be able to buy a home with just a 5% deposit thanks to two Government Schemes both called “Help to Buy”.

NEW HOMES - 20% GOVERNMENT DEPOSIT:

This version of Help to Buy is exclusively available on new-build homes in Scotland from participating homebuilders up to a value of £400,000.  The Scottish Government will provide up to 20% of the purchase price (and take an equivalent equity stake in the property) as long as you have a 5% deposit.

If you meet the relevant affordability criteria that should allow you to obtain a mortgage from participating lenders with just a 5% deposit.  The mortgage from a qualifying lender must be a repayment mortgage and you are not permitted to buy a Help to Buy scheme property with an interest only first mortgage.  

The Scottish Government’s equity stake in the property can be repaid at any time.  

You do not have to be a first time buyer for this part of the scheme but the property has to be your main home.  You can’t buy a second or buy to let property with the scheme.  

If you already own a house you must sell it before you can complete the purchase of your new home and you cannot use a part exchange scheme if you want a mortgage under the Help to Buy scheme.

ALL PROPERTIES – 15% GOVERNMENT GUARANTEE:

This is another version of Help to Buy and this applies to all properties as well as new-build homes up to a value of £600,000.

Under this scheme the UK Government provides a guarantee to the lender for 15% of the loan value provided you have a 5% deposit.  The Government guarantee which lasts for 7 years provides the security the lender needs to offer a 95% mortgage but as with the 20% Government deposit scheme for new homes the mortgage must be a repayment mortgage and not interest only.

As the lenders in these mortgages will have to pay the Government for the guarantee, interest rates on these mortgages are going to be higher than they would be if you had a larger deposit.  

Unlike the new-build option the Government does not take an equity stake in the house and you don’t have to pay the Government anything if and when you sell but as with the new home version of the scheme this can only be used for your main home and it can’t be used to buy a second home or a buy to let property.  The money in this scheme will not be available until January 2014.

If you already have available funds for a deposit of 15% - 20% it would be easier and probably cheaper to apply for a mortgage in the usual way.  However, Help to Buy might be the answer if you are trying to buy your first home or move up the property ladder.  

For first time buyers either schemes could assist in buying your first home without taking many years to save up the deposit you need.  However, whichever scheme is appropriate to you would depend on whether you want a new-build house or not.

A 20% contribution by the Scottish Government under Help to Buy for new homes does not attract interest, so your mortgage payments overall will be lower but the Government will own a share of your home until you repay your equity stake in the property.   

For anyone trying to move up the property ladder these schemes are equally as important as they are for first time buyers as they may be the solution for homeowners who have some equity in their existing homes but not enough for a 15-20% deposit to buy their next property.

However it must be emphasised that normal affordability criteria will apply.  Therefore, you will have to be able to show that you can afford the mortgage repayments in order to qualify for the scheme.  You will not automatically be offered a 95% mortgage because you have a 5% deposit available.

If you want any further information on this matter please contact either Joyce Marshall, Yvonne Burnham or Anne Hunter.

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