Please note: Leeds Building Society only accepts mortgage applications from intermediaries where they are providing an advised sales service, with the exception of Buy to Let & Holiday Let applications. It is the responsibility of the intermediary to ensure that all applicable law including, without limitation, the Financial Conduct Authority rules on advised mortgage sales are complied with including, without limitation, the provision of adequate explanations.

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Help to Buy – how to get a handle on the scheme everybody’s talking about

Over 120,000[1] properties have been purchased using Help to Buy since it launched in 2013 and with 40% of all new build properties now sold through the scheme, it seems that Help to Buy is becoming the method of choice for those looking for a helping hand onto, or up, the housing ladder. With ample opportunities to advise on Help to Buy products, if you haven’t got on board already, now is the time. Here are the essential facts you need to know.

It’s not only for first time buyers

“There’s a common misconception that the Help to Buy scheme is only available to first time buyers, but that isn’t the case,” comments James O’Reilly, Corporate Account Manager at Leeds Building Society. James further comments: “The scheme is open to everyone, whether they are on a low income or already own their property but want to move home. The restriction is that the home must cost less than £600,000. There are a number of reasons why current homeowners might want to take advantage of Help to Buy. An equity loan, which is available on new build properties, could help current homeowners upsize to a property that is more suitable to their needs, with only a 5% deposit needed to make a move.”

There are two schemes under Help to Buy

A little confusingly, there are two types of help available – an equity loan, where the Government will lend the buyer money towards purchasing a new build home, and a mortgage guarantee scheme, where the Government promises to reimburse the lender any costs incurred if the buyer cannot keep up with their mortgage repayments. The equity loan is only available on new build homes, and has been extended until 2021[2], whereas the mortgage guarantee scheme is available on new and old properties alike. However, this mortgage guarantee scheme is currently only available until 30th December, 2016, so buyers looking to take advantage should bear this in mind.

Buyers will have to pay interest on the equity loan after five years

When buyers opt for the Help to Buy equity loan scheme they will need to have a deposit of at least 5%. The Government will then top this up with an equity loan of up to 20%, which is interest free for the first five years. In the sixth year interest will be charged on the loan element at a rate of 1.75%. The interest rate will then increase every year after that in line with inflation. When they sell their home, the total amount repayable will be the proportion of the market value of the property that was funded by the loan, plus interest and charges. The amount that will have to be repaid will therefore depend on the market value of the property at the time it is sold, so if the value of the property has increased the amount repayable will also have increased.

There are good opportunities available

With the Help to Buy equity loan scheme deadline extended to 2021, there are certainly many opportunities for brokers to advise on the scheme. James continued: “In many instances buyers looking to purchase a home find themselves priced out of the market, and an equity loan – and the favourable rates that result from being able to borrow on 75% rather than 95% of the home’s value – could be the difference between being able to afford a property or not for many buyers. With the equity loan scheme extended to 2021, there are going to be plenty of developers looking to promote their Help to Buy offering to interested buyers, and lots of opportunities for brokers to take advantage of the market.”

For more information about Leeds Building Society’s Help to Buy offering, or to speak to one of our team about general enquiries or specific cases call 03450 50 5555.
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This article contains public sector information licensed under the Open Government Licence v3.0