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Help to Buy Mortgage Guarantee

Help to Buy Mortgage Guarantee2nd October 2013

The first phase of Help to Buy, The Help to Buy Equity Loan Scheme for New Homes has been available since April 2013 and more information can be found on our Help to Buy page of this website.

What is the Mortgage Guarantee?

It means that buyers with only 5% deposit will be able to apply for mortgages although they will not be able to actually get the loans through until January 1 2014 onwards.  The mortgages, available from several high street banks, will range from 80 percent to 95 percent of the value of a property.

Who is eligible for the scheme?

  • It will apply to thoses buying new or exisiting homes up to a maximum of £600,000.
  • It is available to all home movers (e.g. trapped sellers, those looking to sell and buy and first time buyers).
  • The purchaser requires 5% deposit.
  • British citizens only.
  • Only repayment mortgages will be offered under the scheme.  Tough checks will be imposed by lenders to ensure buyers can afford their mortgage payments and borrowers' income will be verified.
  • The new mortgages will not be available to people with bad credit history. 
  • It must be the buyers only home.  It can not be used for buy to let or for a holiday home.

How does it Work?

The government guarantees between 5 and 20% of the mortgage, so if the purchaser misses mortgage payments, the lenders' liability is reduced.  This will encourage the lenders to offer higher loan to value products, such as 95% mortgages. at more competitive interest rates.

How do buyers apply for a mortgage under this scheme?

You will apply for a mortgage in exactly the same way as you would for any other mortgage.  There will be no extra paperwork or mortgage guarantee fees.  Tough checks will be imposed, however, by the lenders to ensure buyers can afford their mortgage payments and borrowers' income will be verified. Documents include up to a year's worth of bank statements, three month pay slips, a passport, a utility bill to prove their address and proof of deposit.

Which Lenders will be part of the Help to Buy Scheme?

According to the prime minister at the weekend, mortgage lenders signed up to the scheme which is due to last for three years include RBS, Halifax and NatWest.

One lender, RBS said it expects to be so inundated with applications that it will extend its opening hours.

How is this different from the Equity Loan Help to Buy Scheme?

The scheme will give buyers access to up to 95% loan to value repayment mortgages on all resale and new build properties upto the value of £600,000.  The buyer will own 100% of the property.  The Equity Loan scheme was just for new builds and was an equity loan meaning that the buyer only ever owned 80% of the property,

How will Help to Buy Mortgage Guarantee effect the Housing Market?

It is estimated that the scheme could generate an extra 400,000 house sales in just three years.  An increase in lending confidence will attract more first time buyers and existing home owners to move.  Click here for an opinion on how Help to Buy may affect the housing market.