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| Q&A: Help to Buy mortgage scheme | Q&A: Help to Buy mortgage scheme |
| (2 months later) | |
| The government says that its Help to Buy scheme will assist people trying to get on the housing ladder who can afford mortgage repayments but are struggling to raise a deposit. | The government says that its Help to Buy scheme will assist people trying to get on the housing ladder who can afford mortgage repayments but are struggling to raise a deposit. |
| But critics say that the government guarantee, that forms part of the second phase of the scheme, could create a housing bubble in the UK. | But critics say that the government guarantee, that forms part of the second phase of the scheme, could create a housing bubble in the UK. |
| Not all mortgage seekers will be able to sign up, and those who do will still have to go through "rigorous" affordability checks by their lender. | Not all mortgage seekers will be able to sign up, and those who do will still have to go through "rigorous" affordability checks by their lender. |
| Haven't I heard about this for a while? | Haven't I heard about this for a while? |
| Yes, in fact some parts of the scheme have been operating for nearly a year. | Yes, in fact some parts of the scheme have been operating for nearly a year. |
| The first phase started in April 2013 in England. This sees the government offering a 20% equity loan to buyers of newly-built properties. These buyers must offer a 5% deposit. | The first phase started in April 2013 in England. This sees the government offering a 20% equity loan to buyers of newly-built properties. These buyers must offer a 5% deposit. |
| A similar scheme began in Scotland at the end of September 2013, and another scheme for houses of up to £300,000 began in Wales in January 2014. The Scottish scheme only covers properties up to the value of £400,000, whereas the English scheme covers properties up to the value of £600,000. | A similar scheme began in Scotland at the end of September 2013, and another scheme for houses of up to £300,000 began in Wales in January 2014. The Scottish scheme only covers properties up to the value of £400,000, whereas the English scheme covers properties up to the value of £600,000. |
| In March 2014, George Osborne announced that the equity loan scheme in England would be extended to 2020. It had been due to end in December 2016. | In March 2014, George Osborne announced that the equity loan scheme in England would be extended to 2020. It had been due to end in December 2016. |
| But that's not all, is it? | But that's not all, is it? |
| No, the second phase of the scheme, originally planned for January 2014, was brought forward, and began in October 2013. | No, the second phase of the scheme, originally planned for January 2014, was brought forward, and began in October 2013. |
| Under this system, borrowers across the whole of the UK can put down a deposit of as little as 5% of the property price. The lender offers a mortgage covering the other 95%. | Under this system, borrowers across the whole of the UK can put down a deposit of as little as 5% of the property price. The lender offers a mortgage covering the other 95%. |
| Lenders can sign up to the Help to Buy scheme and pay a fee to the government, which will provide a seven-year taxpayer guarantee covering 15% of the loan value. That guarantee can be called in if the borrower defaults. | Lenders can sign up to the Help to Buy scheme and pay a fee to the government, which will provide a seven-year taxpayer guarantee covering 15% of the loan value. That guarantee can be called in if the borrower defaults. |
| It is available for properties sold for up to £600,000 in the UK. The scheme is expected to continue for three years, and has not been extended. | It is available for properties sold for up to £600,000 in the UK. The scheme is expected to continue for three years, and has not been extended. |
| Are the lenders keen? | Are the lenders keen? |
| RBS and Lloyds Banking Group - both of which are taxpayer backed - are participating in the second phase of Help to Buy, as is HSBC, Aldermore, Woolwich, Santander and Virgin Money. | |
| Nationwide Building Society and Monmouthshire (for the Welsh scheme) are offering loans under the first part- the equity loan scheme. | Nationwide Building Society and Monmouthshire (for the Welsh scheme) are offering loans under the first part- the equity loan scheme. |
| How much do these mortgages cost? | How much do these mortgages cost? |
| RBS and NatWest are offering a two-year, fixed-rate mortgage starting at 4.99% for those with a 5% deposit, with no fee. | RBS and NatWest are offering a two-year, fixed-rate mortgage starting at 4.99% for those with a 5% deposit, with no fee. |
| Halifax is taking applications at a rate of 5.19% with a £995 fee for those with the same deposit. | Halifax is taking applications at a rate of 5.19% with a £995 fee for those with the same deposit. |
| HSBC is offering a rate of 4.79% for the same type of mortgage, with a £99 booking fee. | |
| That is relatively competitive compared with prices outside of Help to Buy, although borrowers are likely to get a better deal if they save up longer for a deposit. | |
| Is there a chance of a return of irresponsible lending? | Is there a chance of a return of irresponsible lending? |
| The government says that various rules have been included to ensure this does not happen. | The government says that various rules have been included to ensure this does not happen. |
| For example, no interest-only or offset mortgages will be allowed. The system cannot be used for the purchase of second homes or for mortgages for buy-to-let investors. | For example, no interest-only or offset mortgages will be allowed. The system cannot be used for the purchase of second homes or for mortgages for buy-to-let investors. |
| In addition, lenders must put these borrowers through new affordability checks. These were brought in for everyone to avoid a return of the reckless lending of the last boom. | In addition, lenders must put these borrowers through new affordability checks. These were brought in for everyone to avoid a return of the reckless lending of the last boom. |
| You mention boom, isn't this creating another one? | |
| That's the fear from many commentators who say that Help to Buy is simply going to help some relatively well-off people move up the housing ladder. | That's the fear from many commentators who say that Help to Buy is simply going to help some relatively well-off people move up the housing ladder. |
| Critics, including Labour, say that this does nothing to tackle the shortage of affordable homes to buy, so it wants more focus on house-building. | Critics, including Labour, say that this does nothing to tackle the shortage of affordable homes to buy, so it wants more focus on house-building. |
| Treasury officials suggest that the system was designed to correct a failure in the market and stimulate builders to get going again with bricks and mortar. | |
| The Bank of England is keeping an eye on the second phase of Help to Buy, along with the housing market as a whole. Every three months a committee meets and can make recommendations to government about extending or paring back the scheme. | |
| The Bank may also require banks to keep within certain lending boundaries, if it feels the market is getting out of control. |