At Wards Solicitors we have been heavily involved with the first phase of the Help to Buy (HTB) scheme (which applies to buyers of newly constructed properties) in our specialist New Homes Department, headed by Geoff Goulding in our Bradley Stoke office and in our Staple Hill office, headed by Liz Pople.
The second phase of the scheme was to commence in the New Year but the Government announced that this would launch this week – 3 months earlier than expected. This has resulted in a spike of publicity, including the inevitable speculation and focus on house prices.
Although, on the face of it, the scheme could have a positive effect, bringing forward the second phase has almost certainly done the industry few favours. The market has been increasingly busy, over recent months and this further spike in demand – caused by buyers, afraid they will face increased competition and lose out to other buyers, or to higher prices if they wait – presents a potential problem. The scheme introduces more buyers but does nothing to address the issue of supply. In our regions we are aware that the availability of property to purchase remains an issue.
What does this second phase mean?
The position with regard to the second phase of the scheme is still uncertain and will evolve as time progresses. However, the essence of the scheme is that the Government has allocated a pot of money which it will use to guarantee up to 15% of the proposed mortgage. Its intention is that this will enable first time buyers to buy and existing owners to move up the property ladder. The scheme is to run for a 3 year period. It is also supposedly now to be regulated by the Bank of England who have power to review this each September.
The scheme is to be available for properties worth up to £600,000.00. Borrowers will need a 5% deposit. The lender can then take up a guarantee from the Government, covering up to 15% of the property value. This was expected to allow borrowers to obtain a mortgage at a better rate than they would with just their actual deposit. It still remains to be seen what rates will actually be offered. The indication is that these will be about 5 to 6% – more expensive than the rates which could be obtained with a large cash deposit – although a fixed rate of 4.99% for 2 years is the latest news released. In addition, the indication is that these products will pass on the fees charged by the Government to the lenders for the guarantee, which could be about £1000 or more. The borrower under this scheme cannot own or have an interest in other property.
It should be noted the second phase of the scheme is also available for remortgages, which could assist borrowers who were otherwise unable to change lenders, particularly those who have been caught by the fall in property values, reducing the equity available in their properties.
The Ministry of Defence (MoD) has also announced a new Help to Buy scheme for the Armed Forces. The Forces Help to Buy scheme will start on 1st April 2014 and will allow service personnel to borrow up to 50% of their salary (up to a maximum of £25,000), interest-free, to help them to buy their first home.
As things stand there are a number of unanswered questions. Importantly, we still do not know how many lenders will sign up to the scheme. As far as we understand it only two lenders have, so far, done so – Lloyds (Halifax) and Royal Bank of Scotland (NatWest). Both these lenders are, of course, part owned by the Government. Whilst HSBC and Virgin Money have also indicated an intention to join the scheme exactly how many other lenders will follow suit remains to be seen.
More important, however, is the ‘false start’ we are currently seeing to this second phase. Whereas the Government said the scheme started on Monday, it appears that apart from registering interest for the schemes, prospective borrowers must wait to do more than this. Those lenders signed up to the scheme do not, yet, have their Help to Buy products in place and, as yet, there is no indication of exactly when this will change. There may therefore be a delay before buyers can enter the market place, using this scheme, and compete for available property.
For more information please speak to your usual Wards Solicitors contact, or contact Susan Ellis on firstname.lastname@example.org.