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Government could provide up to 15% deposit
A new scheme outlined in the Budget in which the Government will subsidise deposits has come in for criticism from the National Housing Federation. The scheme which involves over £130billion hopes to increase the loan market by approximately 500,000.
The ‘Help to Buy’ scheme offer to top up the deposits for those who can only put up 5% themselves. The properties involved can be new builds worth up to £600,000. The Treasury will add another 15% of the deposit with the first five years of the loan being set up interest free. Once that period is over the loan will be paid back with an interest rate of 1.75%, the loan can be paid back at any time. This part of the scheme will account for £3.50billion.
The other £130billion will be made available from January 2014 and will be for any type of property, not just new builds. The mortgages will be made available to those borrowing from 80% to 95% of the property price.
Should the property be repossessed the Government will bear a proportion of the losses. The other portion will be accepted by the lender. It is believed that all of the major mortgage providers have agreed to take part in the scheme. The Chancellor has also announced that more Funding for Lending cash could be made available to the banks, it is hoped this will push rates down lower.
The Chief Secretary to the Treasury Danny Alexander admitted that there were some ‘risks’ to the scheme and would not speculate on what would happen if property prices collapsed. He did say, however, ‘What we are doing is supporting house builders to build more homes, support those hundreds of thousands of people who can afford mortgage repayments to buy a home but not the deposit,’
The scheme will run for three years and will be extended if the Bank of England agreed.
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Your property may be repossessed if you do not keep up repayments on your mortgage.
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