Help to Buy – Ask the Expert
To help people still confused about exact details of phase 2 of the Help to Buy scheme, we’ve asked a panel of money and property experts to clear up a few common questions.
Q. What is phase two of the Help to Buy scheme?
(Answer from director and housing market analyst at Rightmove, Miles Shipside)
A. Phase two of the Help to Buy scheme is a government mortgage guarantee scheme. The scheme means more mortgage availability for people with as little as a 5% deposit.
Q. What is the difference between phase one and phase two of the scheme?
(Answer from director and housing market analyst at Rightmove, Miles Shipside)
A. We have created a handy check list to explain the differences between the two: http://rightmovenews.wpengine.com/news/articles/property-news/the-help-to-buy-handy-checklist
Q. Is it now easier for me to get a mortgage?
(Answer from Martin Lewis, Moneysavingexpert.com)
A. It may enable you to get a mortgage at a cheaper rate, however it’s very likely that if you only have a small deposit, there are still going to be some rather harsh credit scoring and affordability criteria. If you have a 5% deposit, a good credit score and can prove you can make repayments, what is likely to happen is you will be able to get a mortgage at a more competitive rate. However, if you could push to a 10% deposit rather than 5% you will find rates coming down significantly. If you can push to a 20% deposit, rather than 10%, then you would find rates coming down very significantly. But I do appreciate how difficult that is for many people.
Q. Is it now easier for me to buy a property?
(Answer from Money Advice Service)
A. Individuals still need to prove they can afford mortgage payments and meet mortgage providers lending criteria. If these conditions can be met and you have at least a 5% deposit saved, then yes, you may find it easier to obtain a mortgage from a lender participating in the Help to Buy: mortgage guarantee.
Q. Will my mortgage payments go up after the Help to Buy Guarantee ends?
(Answer from Money Advice Service)
A. No, the Help to Buy: mortgage guarantee will not impact on your future mortgage rates. If you are worried about mortgage payments going up you can ask if the lender offers fixed rates.
Q. What are the risks?
(Answer from Martin Lewis, Moneysavingexpert.com)
A. You are potentially buying a property with a very small deposit, which means you have a very big proportionate loan. The biggest risk out there is that interest rates aren’t just low right now – they are nearly 2% lower than the prior 200 year historic low. We are in an anomaly time and at some stage in the future, interest rates are going to bounce back. Using UK base rates as an example, they may bounce back from 0.5% up to 2%, 3% or 5%. Indeed, we may well see the return of interest rate levels we saw in the 1980s when they went to 18%. So the big risk is ‘could I afford to repay the mortgage if interest rates increased’. And if the answer to that is no, then you are going to be in trouble.
Q. Will I have difficulty selling my property at a later stage if I use Help to Buy?
(Answer from Money Advice Service)
A. Buying a home with a Help to Buy: mortgage guarantee will not have an impact on the saleability of the home in the future. Because with the mortgage guarantee scheme there is NO shared ownership, the resale of the property will be the same as any other standard mortgaged property.
Q. Are we creating an artificial market or a ‘price bubble’? E.g. will I be in negative equity in 5 years’ time if I take up the scheme?
(Answer from director and housing market analyst at Rightmove, Miles Shipside)
A. The property market is exactly that – a market. Property prices can go up and down depending on a number of factors, including the balance between supply and demand. It is worth remembering that prices are lower today in some parts of the country compared to five years ago, partly influenced by the difficulty many buyers have in obtaining a mortgage. Help to Buy will increase demand for property, though crucially, it is not just for first-time buyers and so as existing home owners move they will have to sell helping to increase property supply. Help to Buy is scheduled to last for three years, the thinking being the mortgage market will be functioning better when it finishes, enabling a smooth transition.
