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Budget 2013: Help to Buy boost for home owners
The government has announced plans to help first-time buyers and second steppers move up the property ladder.
Would-be homeowners and ‘second steppers’ trying to move up the housing ladder will both benefit under the government’s ‘Help to Buy’ scheme, announced in the Budget today.
The initiative is in two parts.
The first part will see the government offer interest-free loans for a period of five years to people who buys new-build homes. The loans will be for 20% of the cost of the property, with the homeowner putting down a 5% deposit. The loan is repaid when the property is sold and is open to anyone, whether a first-time buyer or current homeowner, as long as the property is worth less than £600,000.
The aim is to help those struggling to save enough for a deposit to buy their first property or for those who already own their home but have seen their equity fall as house prices drop and cannot more – the ‘second steppers’. The Treasury said the scheme aims ‘to support a new generation in realising the dream of homeownership’.
The second part of the scheme, which will be launched in January 2014 and run for three years, is £130 billion of ‘mortgage guarantees’ offered by the government.
The government said offering guarantees would ‘increase the appetite of mortgage lenders for high loan-to-value (LTV) lending to creditworthy customers’. The mortgage guarantee will be offered to first-time buyers only, whose numbers have declined as mortgage lenders have tightened their criteria and demanded bigger deposits from borrowers. In 2012 there were 40% fewer first-time-buyers that there were in 2007.
Under the scheme the government will guarantee 80% of the value of the loan provided by the lender and it will pay out if the borrower does not keep up repayments and loses their home.
The guarantee will be valid for seven years because ‘evidence shows that loans are unlikely to default after such a period has elapsed’ and guarantees will only be allowed to be taken out on residential, not buy-to-let properties, of £600,000 or less and the mortgage must be represent between 80% and 95% of the value of the property
Borrowers will be subject to credit score tests and loan-to-income tests in order to qualify for the guarantee.
Lenders must pay the government a commercial fee for each mortgage in the guarantee scheme.
Henry Knight, managing director of mortgage broker Springtide Capital, said: ‘We are relieved to hear the chancellor making every effort to help those who have struggled to save for a deposit, as this is always the biggest hurdle for homeowners to overcome.
‘It is also encouraging that this scheme will be available to the majority of the market as there are many young families needing to upscale to properties they could not previously afford.’
The British Property Federation also welcomed the chancellor’s announcement. ‘This is a strong package of help for housing. Annual transactions are half what they were and that has a knock-on consequence for all those parts of the economy that rely on people moving. Helping people needing a deposit has for some time been cited as the missing piece of a coherent housing policy and is therefore welcome.’
In a further boost to the property market, the chancellor said the government would look at extending the Funding for Lending scheme, which has seen banks given access to £80 billion to lend to mortgage borrowers, receiving preferential rates the more they lend, and has driven mortgage rates to historical low as banks and building societies compete for business.
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