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You can find the current article at its original source at http://www.guardian.co.uk/money/2013/jul/27/help-to-buy-facts
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| Version 2 | Version 3 |
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| Help to Buy: what's the catch? | Help to Buy: what's the catch? |
| (7 days later) | |
| More details emerged this week about how the government will be underwriting the mortgages of more than half a million homebuyers as part of the second phase of its Help to Buy scheme. | More details emerged this week about how the government will be underwriting the mortgages of more than half a million homebuyers as part of the second phase of its Help to Buy scheme. |
| The so-called "mortgage guarantee" element is due to go live in January 2014 (the first phase, involving equity loans, kicked off in April). | The so-called "mortgage guarantee" element is due to go live in January 2014 (the first phase, involving equity loans, kicked off in April). |
| George Osborne's plans received a kicking from many economists and politicians, with one leading business body branding them "very dangerous". | George Osborne's plans received a kicking from many economists and politicians, with one leading business body branding them "very dangerous". |
| But if the initiative results in more mortgages becoming available, and drives down interest rates for buyers with small deposits, it's likely to be judged a success by many. | But if the initiative results in more mortgages becoming available, and drives down interest rates for buyers with small deposits, it's likely to be judged a success by many. |
| Cheaper mortgages sounds good. How much cheaper? On the face of it, the new scheme could reduce interest rates for those with only a 5% deposit from 5.5%-6% to below 4.5%, and increase the choice of deals. | Cheaper mortgages sounds good. How much cheaper? On the face of it, the new scheme could reduce interest rates for those with only a 5% deposit from 5.5%-6% to below 4.5%, and increase the choice of deals. |
| David Hollingworth at mortgage broker London & Country, says someone who takes out one of the current "NewBuy" 95% deals, such as Nationwide's two-year fixed-rate to buy a newly-built home, would pay 4.44%. | David Hollingworth at mortgage broker London & Country, says someone who takes out one of the current "NewBuy" 95% deals, such as Nationwide's two-year fixed-rate to buy a newly-built home, would pay 4.44%. |
| By contrast, someone opting for one of the relatively few "standard" 95% two-year fixed-rate deals out there now would typically pay 5.59% (at Hanley Economic building society) or 5.99% (Newcastle building society). | By contrast, someone opting for one of the relatively few "standard" 95% two-year fixed-rate deals out there now would typically pay 5.59% (at Hanley Economic building society) or 5.99% (Newcastle building society). |
| On a mortgage of £150,000, 4.44% translates into a monthly payment of £829, assuming it is a repayment loan and a 25-year term. | On a mortgage of £150,000, 4.44% translates into a monthly payment of £829, assuming it is a repayment loan and a 25-year term. |
| A rate of 5.59% translates into a payment of £929, while 5.99% would give a £966 monthly payment. | A rate of 5.59% translates into a payment of £929, while 5.99% would give a £966 monthly payment. |
| I sense a "but"... You're right. While more details emerged this week, there are still plenty of things we don't know. For example, lenders will have to pay the government a fee for each mortgage that is guaranteed, and a lot will depend on how much this is set at – a final decision has yet to be announced. If the fee is set too high, banks and building societies will be reluctant to sign up, or it could mean the deals on offer are less attractive. | I sense a "but"... You're right. While more details emerged this week, there are still plenty of things we don't know. For example, lenders will have to pay the government a fee for each mortgage that is guaranteed, and a lot will depend on how much this is set at – a final decision has yet to be announced. If the fee is set too high, banks and building societies will be reluctant to sign up, or it could mean the deals on offer are less attractive. |
| So how will the scheme work? It's aimed at enabling many more people to obtain a mortgage without the need for a prohibitively large deposit. | So how will the scheme work? It's aimed at enabling many more people to obtain a mortgage without the need for a prohibitively large deposit. |
| The government will make available £12bn of guarantees to lenders – enough, it believes, to support £130bn of mortgages where a deposit of as little as 5% is required. | The government will make available £12bn of guarantees to lenders – enough, it believes, to support £130bn of mortgages where a deposit of as little as 5% is required. |
| Ministers claim this could translate into well over 500,000 mortgages over the three years of the scheme. | Ministers claim this could translate into well over 500,000 mortgages over the three years of the scheme. |
| Lenders who offer low-deposit mortgages will have the opportunity to buy a guarantee on the "top slice" of the mortgage – the bit between 80% and 95%. If a borrower gets into financial difficulty and their property is repossessed, the government will cover a chunk of the lender's losses. | Lenders who offer low-deposit mortgages will have the opportunity to buy a guarantee on the "top slice" of the mortgage – the bit between 80% and 95%. If a borrower gets into financial difficulty and their property is repossessed, the government will cover a chunk of the lender's losses. |
| The guarantee will be valid for up to seven years. | The guarantee will be valid for up to seven years. |
| Give me an example The guarantee will pay out if the property is repossessed and the bank or building society is unable to recover all the money owed – but it only applies to losses above 80% of the original purchase price. | Give me an example The guarantee will pay out if the property is repossessed and the bank or building society is unable to recover all the money owed – but it only applies to losses above 80% of the original purchase price. |
| The lender will also have to take a modest hit above this threshold, to ensure it does not offer risky loans. | The lender will also have to take a modest hit above this threshold, to ensure it does not offer risky loans. |
| Let's say a bank is forced to repossess a property that cost £100,000, but is only able to raise £65,000 through selling it. | Let's say a bank is forced to repossess a property that cost £100,000, but is only able to raise £65,000 through selling it. |
| The guarantee will pay out £14,250 (£15,000 minus a £750 lender loss). The 5% deposit from the borrower (£5,000) will be wiped out, and the lender will lose a further £15,000 (ie, the part between £65,000 and £80,000). | The guarantee will pay out £14,250 (£15,000 minus a £750 lender loss). The 5% deposit from the borrower (£5,000) will be wiped out, and the lender will lose a further £15,000 (ie, the part between £65,000 and £80,000). |
| Who's eligible? Millions of people. This new scheme is available to existing homeowners as well as first-time buyers, with no specific age restrictions, and applies to both "old" and brand-new properties costing up to £600,000. | Who's eligible? Millions of people. This new scheme is available to existing homeowners as well as first-time buyers, with no specific age restrictions, and applies to both "old" and brand-new properties costing up to £600,000. |
| You will need a deposit of at least 5%, and you have to take out a repayment mortgage (interest-only is not allowed). However, to take part, buyers will need to demonstrate they can afford the repayments on the mortgage, and will need a reasonably clean credit history. | You will need a deposit of at least 5%, and you have to take out a repayment mortgage (interest-only is not allowed). However, to take part, buyers will need to demonstrate they can afford the repayments on the mortgage, and will need a reasonably clean credit history. |
| Anyone who has a county court judgment against them for more than £500 that relates to the three years before they apply for a loan, will be barred. | Anyone who has a county court judgment against them for more than £500 that relates to the three years before they apply for a loan, will be barred. |
| Anyone else not eligible? The scheme is not available on second homes, and borrowers will be asked to sign a declaration that they do not own another property anywhere in the world. Nor is it available on buy-to-let properties. | Anyone else not eligible? The scheme is not available on second homes, and borrowers will be asked to sign a declaration that they do not own another property anywhere in the world. Nor is it available on buy-to-let properties. |
| It will not be possible to use Help to Buy in conjunction with any other government scheme, including NewBuy. | It will not be possible to use Help to Buy in conjunction with any other government scheme, including NewBuy. |
| How do I apply? It all kicks off in January, so there will be more information issued in the coming months. | How do I apply? It all kicks off in January, so there will be more information issued in the coming months. |
| It's possible that borrowers will not know they are applying for a loan through this part of the Help to Buy scheme, as the guarantee will be bought by the lender and the deal could happen behind the scenes – lenders might just advertise 95% loans with no mention that they are being backed by the taxpayer. Details are not yet clear. | It's possible that borrowers will not know they are applying for a loan through this part of the Help to Buy scheme, as the guarantee will be bought by the lender and the deal could happen behind the scenes – lenders might just advertise 95% loans with no mention that they are being backed by the taxpayer. Details are not yet clear. |
| I'm looking to buy now. Is it better to wait until this scheme comes in? That could be risky, particularly if house prices are rising in the area you are looking at. It's already clear there are a lot of unknowns in terms of how the scheme will look and who will be taking part. | I'm looking to buy now. Is it better to wait until this scheme comes in? That could be risky, particularly if house prices are rising in the area you are looking at. It's already clear there are a lot of unknowns in terms of how the scheme will look and who will be taking part. |
| "For someone in that position, I would say they were well-advised to carry on saving for a bigger deposit. That should open up more opportunities than waiting for the Help to Buy guarantee. If the guarantee brings some useful options for them, then great. But at the moment there's no certainty about how it's going to operate," adds Hollingworth. | "For someone in that position, I would say they were well-advised to carry on saving for a bigger deposit. That should open up more opportunities than waiting for the Help to Buy guarantee. If the guarantee brings some useful options for them, then great. But at the moment there's no certainty about how it's going to operate," adds Hollingworth. |
| What do the critics say? A great deal. The Institute of Directors says the housing market needs more supply, and the extension of this scheme is "very dangerous … the world must have gone mad for us to now be discussing endless taxpayer guarantees for mortgages". | What do the critics say? A great deal. The Institute of Directors says the housing market needs more supply, and the extension of this scheme is "very dangerous … the world must have gone mad for us to now be discussing endless taxpayer guarantees for mortgages". |
| The Liberal Democrat peer Lord Oakeshott reckons Osborne "is pouring fuel on the flames of an overheating housing market in the south-east", while Michael Pearce at Capital Economics, says the risk for the chancellor is that Help to Buy "reinflates the house price bubble that the UK saw in the run-up to the 2008 recession (which still has not fully deflated), that could pop before the election". | The Liberal Democrat peer Lord Oakeshott reckons Osborne "is pouring fuel on the flames of an overheating housing market in the south-east", while Michael Pearce at Capital Economics, says the risk for the chancellor is that Help to Buy "reinflates the house price bubble that the UK saw in the run-up to the 2008 recession (which still has not fully deflated), that could pop before the election". |
| Top mortgages | Top mortgages |
| HSBC | HSBC |
| Chelsea Building Society | |
| HSBC | HSBC |
| Provided by London & Country for the Guardian | Provided by London & Country for the Guardian |