Is The Help To Buy Scheme Really Helping?

A new report by the National Audit Office (NAO) shows that many of people on the Help to Buy scheme could have afforded a house regardless – now some of those buyers are in negative equity, and in a situation far worse than if they’d gone it alone.

Firstly, what is the Help to Buy scheme?

Help to Buy was launched in April 2013 by former chancellor George Osborne as a way of getting more buyers onto the property ladder. It’s open to both first-time buyers (who it was largely aimed at) and home-movers too, but is only ever available for buyers of new properties. Essentially it involves:

The buyer has to have at least 5% of the sale price of a new-build flat or house as a deposit.
The government lends the buyer up to 20%, or 40% if you live in London, of the sale price. This loan is interest-free for five years. Afterthe interest-free period, buyers are charged 1.75% on the outstanding amount as interest. This fee increases each year by Retail Price Index plus 1%.
The buyer borrows the rest (up to 75%, or 60% if you live in London) from a mortgage lender, on a repayment basis.
Buyers need to repay the equity loan in full after 25 years, when the mortgage term finishes or when you sellyour home – whichever happens first.

The scheme is currently due to end in 2023, bringing an end to a flagship loan programme that currently divides financial critics – some feeling it boosted, and others that it harmed, the UK property market.

It’s now been used to support more than 200,000 purchases. It was introduced by the government with the aim to improve on a falling in property sales, following the financial crash in late 2008, and the tightening of regulations over the availability of high loan‑to‑value and high loan-to-income mortgages that followed on from this.

Michelle Neville, Sales Director at Clever Mortgages tells us: “At Clever Mortgages we fully understand the needs and drivers for first-time buyers. We help people day-in-day-out get their first mortgage secured, and we know from speaking to our customers how tricky it can be to get on the property ladder. But sometimes customers are surprised that getting a mortgage can in fact be easier than they first think, and with our guidance they can find ways of borrowing more, even with less deposit. We work with a trusted range of lenders, and all have their specialisms for differing needs.”

So, what are the criticisms of the Help to Buy scheme?

The new report suggests that some buyers using the scheme risk finding themselves in negative equity. The National Audit Office also highlighted figures showing that many people using the government’s Help to Buy scheme could have purchased their properties without it.

Perhaps surprisingly, the scheme isn’t means tested. Around one in 25 home buyers using the scheme had household incomes of over £100,000, 10% of buyers had household incomes of over £80,000, or over £90,000 in London, the National Audit Office (NAO) said, and so could have afforded to buy their own home themselves, even if it wasn’t in their ideal location.

The Help to Buy scheme can be a useful aid for many people, but it’s not always the most suitable option. If you’re a first time buyer considering the Help to Buy scheme, speak to us first to see if it really is the most suitable option for you’.

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Help to Buy and the property market

The Department’s independent evaluations of the Help to Buy scheme show it has increased home ownership and housing supply – and has therefore achieved that goal, or at least in the short-term.

Housing firm Persimmon, for example, is the biggest beneficiary, with almost 15% of the sales made under the Help to Buy Scheme. Redrow made up 3.7% of sales, Bellway accounted for 6.7%, Taylor Wimpey made up 11.9%, and Barratt made up 13.3% %, according to the NAO’s analysis.

The report states that the government will aim to wean the property market off the scheme over the coming years, whilst still ensuring that developers continue to build new properties at the rates they are doing at the moment.

I’ve bought a house with Help to Buy – what next?

If you’re concerned about the findings from the report, and aren’t sure when or how you can end your commitment to the scheme, or whether you’re in negative equity, now’s the time to seek advice.

Now’s the time to look into your situation – waste no time in gathering your documents, and setting aside some time to review them to find out exactly where you stand.
Crucially, find out whether you’re in negative equity. Negative equity means that your house value is less than what you owe on it – so you’ll need to know what your house is worth now, and what your current mortgage balance is.
Find out the terms you had when you took out the scheme – there’ll most likely be a set amount of time you have to pay the loan off over.

Seek expert help. It might be time to remortgage, we help customers every day find a great remortgage deal that’s right for them, even if they have bad credit.

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We can help

Clever Mortgages help first time buyers every day to take their first step on the property ladder. If you’re moving house and want to speak to one of our expert brokers about next steps, get in touch today.

Michelle Neville says, “Do get in touch, our brokers are experts in finding the right lender whatever the situation. We can offer advice to you if you’re on the Help to Buy scheme and aren’t sure what your next move should be – or if you’re a first-time buyer who’s exploring your options.”

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What is the difference between a secured and unsecured loan?

Secured loans

As the name would suggest, a secured loan is one that’s secured against something you own – for example, if you can’t afford to make your mortgage payments or keep to the arranged repayment schedule then you could risk a tarnished credit report or further action.

There are many reasons to select a secured loan over other options such as credit cards. We have gone into these in a little more depth below to give you an overview on their features and benefits, in what situations they could be beneficial and what considerations you should make before progressing with a decision.

Another example of a secured loan could be an equity loan which is simply a second mortgage In this example you would borrow a lump sum from your property and pay the loan back on a monthly repayment schedule over a period of 5 to 15 years.

What are the benefits of a secured loan?

Generally speaking, secured loans will have the option of longer repayment periods than unsecured ones, meaning they might be more affordable for you in terms of monthly payments. They also tend to let you gain access to much lower interest rates than unsecured ones.

Because the loan is guaranteed against something, you can generally get secured loans for larger total loan balance than unsecured loans.

Secured loans are also good if you’ve got a bad credit history – lenders probably won’t be willing to lend to you if you’ve been in a debt solution or have a poor history of paying back unsecured debt, but secured credit may provide the confidence they need.

The loan could be used for a any legal purpose which could also include combining unsecured debt and credit cards within a debt consolidation loan.

Unsecured loans

Unsecured loans are simply ones in which you borrow money and agree to a fixed repayment schedule, but don’t secure the loan against any kind of property. A standard bank loan, for example, would be classed as an unsecured loan.

A payday loan would also fall into this category as you aren’t securing it against anything, but are promising to pay back a large amount of interest relative to what you’ve borrowed from the payday lender. Payday loans may also offer revolving credit accounts which encourages repeated borrowing from the same provider without having to reassess lending criteria or fill in a new full application.

Unsecured credit is likely to be lent on a lower total borrowing limit, a shorter repayment schedule and whilst unsecured loans aren’t directly secured against anything you own, if a borrower defaults it can result in unsecured debt, the consequences of which could mean that your possessions are seized by bailiffs or become secured debts unless you come to an agreement with your lender.

What are the benefits of an Unsecured loan?

Loan providers can lend to more people because you can get one without owning any property, like a house, a car or a recreational vehicle.

If you’ve got an excellent credit score, then the best deals will be available to you at a higher credit limit. The downside to this, of course, is that if you’ve got a poor credit score or credit rating then you’ll probably find it hard to get a good (or fair) deal on an unsecured loan.

Some unsecured loans might give you the possibility of a payment holiday (where you don’t make any repayments) for a few months before you start paying anything back, but these are subject to your potential lenders policies and may not come as standard.

We work closely with over 100 lenders and can find the most suitable solution from over 1,000 products. Your potential lenders can look at a wide variety of personal circumstances, so if you’re looking for secured finance, a mortgage loan or a personal loan, get in touch using our simple enquiry form or give us a call on 0800 197 0504.

Find your best secured loan Deal

Expert secured loan advice, access to 1000+ products with over 100+ lenders and options for bad credit ratings – Enquire with Clever Mortgages today.

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Is now the time to remortgage?

At Clever Mortgages, we have access to the latest remortgage products from a wide range of lenders. With interest rates remaining low you could switch to a new mortgage product to save money by getting a lower rate.

There are also different types of mortgage to consider, such as a fixed rate, so you know what you’re paying each month. If the value of your home has increased, you could borrow more than the value of your mortgage to consolidate other debts or make important home improvements to increase the value of your home.

Continue reading “Is now the time to remortgage?”

What the new stamp duty cuts can mean for you

As of the 22nd November, stamp duty will be scrapped for the majority of first-time buyers. This is part of the 2017 budget by the chancellor Philip Hammond and aims to help fix the housing market. Any first-time buyer looking to purchase a property under the cost of £300,000 will be exempt from paying the tax.

What the new stamp duty cuts can mean for you

As of the 22nd November, stamp duty will be abolished for the majority of first-time buyers. This saving will be available in England, Northern Ireland and Wales until the end of March 2018. This is part of the 2017 budget by the chancellor Philip Hammond and aims to help fix the housing market.

Any first-time buyer looking to purchase a property under the cost of £300,000 will be exempt from paying the tax. Additionally, anyone paying up to £500,000 will only have to pay on the purchase over the threshold.

Mr Hammond has stated that 80% of first-time buyers will now pay no stamp duty when purchasing a property.

What is stamp duty?

Stamp duty land tax (SDLT) is a lump-sum tax applicable to anyone buying land or property over a certain price in England, Wales and Northern Ireland.

Under the previous system all home buyers, including first-time buyers, would pay stamp duty up to 12% on properties over £125,000. In the same way, home movers will continue to pay no stamp duty on properties up to £125,00.

The changes do not apply in Scotland which has an independent system of land tax. Stamp duty will devolve to Wales from March 2018.

How much can you save?

The below table can help you work out how much you could save as a first-time buyer on a property up to £300,000:

Property price	Stamp duty saving
Up to £125,000	£0
£126,000 – £150,000	£20 – £500
£151,000 – £200,000	£520 – £1,500
£201,000 – £250,000	£1,520 – £2,500
£251,000 – £300,000	£2,550 – £5,000

Any first-time buyer paying between £300,000 and £500,000 will pay stamp duty at 5% of the purchase price in excess of £300,000. Those purchasing a property over the cost of £500,000 will not receive any relief. However, as the typical first-time buyer pays around £208,000* the average saving will be roughly £1,660.

How Clever Mortgages can help

At Clever Mortgages, we have experience helping first-time buyers from all types of situations get on the property ladder. We work with a long list of lenders to help you find the right mortgage to go with your new home.

*Source: The Guardian, 2017

What does the interest rate rise mean for you?

There’s been plenty in the news recently about interest rates rising for the first time in over 10 years. The Bank of England has raised the base rate from 0.25% to 0.5%. This means you could be paying roughly £200 more a year for every £100,000 you owe.

What does the interest rate rise mean for you?

Why has the interest rate increased?

The rise in the base rate is an attempt to lower inflation. Inflation is the general increase in prices for goods and services. A higher interest rate often works to reduce inflation as it encourages people to save rather than spend.

What does the interest rate rise mean for your mortgage?

Fixed Rate Mortgages

If you are on a fixed-rate mortgage, nothing will change – for now. However, when the time comes to review your current mortgage deal, there’s a chance your mortgage payments will increase on a like-for-like product. Most fixed rate deals are either 2 or 5 years, so depending on when you started with your current product, you may have some time to consider your options. You can make use of a mortgage calculator to understand what your new repayments will be once your current deal comes to an end.

Variable Rate Mortgages

Those on a variable rate mortgage are at greatest risk of seeing an immediate increase in their monthly mortgage payments; this accounts for around half the mortgaged population. If you’re on a Tracker mortgage, you will definitely see an increase in your payments. As the name suggests, a tracker mortgage ‘tracks’ the base rate and therefore rises and falls with it.

If you’re on a variable rate, it could be time for you to review your mortgage. You can get in touch with an adviser or even start the mortgage application process to make sure you’re on the best deal for you.

What about my savings?

Whilst yes, you will earn more on your savings, don’t expect it to outweigh the increase in your mortgage payments. If you have £10,000 in a cash ISA, you could expect your annual interest to rise by around £25.

Should I do anything?

It may not be a bad idea to get mortgage advice, particularly if you’re on a variable rate mortgage, as there could be a better, cheaper product for you to switch to. Mortgage brokers are often your best port of call. Unlike if you went to an individual lender, they only review their own range of products to find you the best deal.

Clever Mortgages can explore much further. We review an extensive range of options from different lenders to find the one you’re most comfortable with, so you can be sure of staying happy in your home.