Is The Help To Buy Scheme Really Helping?

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’.

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.

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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Myths around mortgages and credit scores

Your credit score is one of the most important pieces of information about you when it comes to borrowing money. Mortgage lenders use your credit record to help them make a decision on whether they should lend to you. However, despite their importance, there’s still a lot of misunderstanding and confusion around credit scores and what they mean.

Myths around mortgages and credit scores

Your credit score is one of the most important pieces of information about you when it comes to borrowing money. Mortgage lenders use your credit record to help them make a decision on whether they should lend to you.

However, despite their importance, there’s still a lot of misunderstanding and confusion around credit scores and what they mean.

The myths uncovered

Here we list some of the myths surrounding credit scores and what they can mean for your mortgage application.

“My credit score is too low to get a mortgage”

There’s no set minimum score required to get a mortgage. This is determined by the lender themselves. As lenders have different levels of tolerance, some will be more willing to consider you than others if you have bad credit. Although many won’t want to risk lending to someone with bad credit, there are lenders who can help.

If your credit score is low then applying with a company who specialise in offering bad credit mortgages will give you the best chance of getting approved. These mortgages work in exactly the same way as a standard mortgage, but interest rates will be higher and it’s likely that you will need to put down a bigger deposit.

“Negative information on my credit report will stop me getting a mortgage”

There are still mortgage options available to people who have negative information on their credit file. This might be a CCJ, defaults from previous loans or even a bankruptcy discharge. You may have otherwise been in an IVA or other debt plan to help repay your debts. If you’ve struggled financially in the past but are back on track now then there are lenders who will consider your application. This negative information remains on your credit file for a maximum of 6 years, so if you’re unsure that it still exists you should check your credit report. You can do this through a credit reference agency such as Experian or Equifax.

“I’ve never borrowed which means I’m a safer customer to lend to”

Lenders actually prefer to lend to people who have some history of making loan repayments. It provides proof that you have previously made payments on time and in full. As you’re likely to continue with this behaviour, it can make you be perceived as more trustworthy than someone who hasn’t borrowed before. This is because those who haven’t borrowed can’t provide any evidence to show they will make payments on time.

Having no credit can often make it just as difficult to get a mortgage as having bad credit. You should work to try and improve your credit score if you’re in this situation. This can often be the case if you’re a first-time buyer and have never had a mortgage or loan before. If you’re getting your first mortgage, here are some ways you can improve your chances.

“My partner has bad credit so neither of us will be able to get a mortgage”

If your partner has struggled with debt then it’s natural to worry about how this might affect you as well. The good news is that there are lenders out there who are willing to consider your application whether you’re buying a house individually or looking for a joint mortgage. If you have no financial links with your partner already, such as a loan or a joint bank account, then your partner’s credit score won’t affect you getting a mortgage independently of them. Even if you’re married you won’t be associated financially unless you have some sort of joint finances. Alternatively, you might be asking will my bad credit score affect my partner?

If you’re looking for a joint mortgage, however, you will become financial associates and will both be liable to repay. A joint mortgage will allow you to borrow more money, as it will take into consideration both your incomes.  Despite whether or not you have a good credit score, your partner’s bad credit will affect your interest rate on the mortgage and will likely require you to put down a larger deposit. As each person’s situation is unique, it’s best to speak with a mortgage advisor before applying.

Take a look at our article on joint mortgages for further information.

“Being on the electoral roll isn’t important”

If you have bad credit you should be doing everything you can to help improve your score. One of the ways you can do this is by making sure you’re on the electoral register. If you’re not then you should register as soon as possible. Although it’s not compulsory to vote, having your details available on the electoral roll allows lenders to easily verify your identity and address. This can have a positive impact on your credit score. If you’re not sure if you’re already registered, you can check on the website Your Vote Matters.

“Applying to different companies will increase my chances at being accepted”

Many people assume that if they keep applying for finance they will eventually find a company who will accept them. This couldn’t be more incorrect. When searching for finance, multiple applications can be one of the worst mistakes you can make. Each time you make a credit application it leaves a mark on your credit file. This is because the lender will typically carry out a “hard” search, which will leave a footprint on your credit file that other lenders can see. These have a direct impact on your scoring as they show your level of need for credit. If you have too many applications made within the same time period, lenders can be put off by your application as it can seem as though you’re desperate for credit and therefore potentially less likely to make payments on time.

The best way to approach finance applications is to do your research before applying and if you know you’re going to apply to more than one, then try and spread these out over a few months. If you want to make comparisons, you can always ask the lender to run a soft search for a quote, which will only be visible to you.

“I’ve not checked my credit score but I presume it’s ok”

Your credit score is not something that will be made itself known to you. So if you don’t check your credit score, you won’t know if it’s good or not. Many people have never checked their credit reports. Some people do this because they’re afraid of the result; others don’t check it because they don’t understand the importance of it. Some people also avoid checking their credit report because they think that this will have an impact on their score. In actual fact you should make sure you check your score regularly so you can know the situation you are in, how you can improve it and what help you to identify what types of finance you will be eligible for. This can help you avoid being rejected.

You can check your credit score through a credit reference agency such as Experian or Equifax.

“My bad credit will always hold me back”

Just because your credit is bad now doesn’t mean it will stay this way forever. There are a number of things you can do to improve your credit score and get your finances back on track. This might mean paying higher interest rates, for now, to make up for it, but over time you can prove to lenders that you’re a trustworthy person to lend to again.

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Top tips for getting a mortgage

When you’re looking to buy your first home, getting a mortgage will be your top priority. You will want to do what you can to get the best chance of being approved. Here we look at the top ways you can increase your chances of getting a mortgage.

Top tips for getting a mortgage

When you’re looking to buy your first home, getting a mortgage will be your top priority. You will want to do what you can to get the best chance of being approved. Here we look at the top ways you can increase your chances of getting a mortgage.

1.     Check your credit score

Checking your credit report is the first thing you should do before applying for a mortgage. Lenders favour applicants with a good credit score, but there are still lenders who will consider your application if you’re suffering from a poor credit history or no credit history. Either way, it’s good to know what situation you’re in so you can work to improve your credit score if you need to. This means you can avoid any nasty shocks when applying for a mortgage as you will have a better idea of what you can expect. You will also be able to see if there are any errors on your credit file that need correcting before applying for your mortgage.

You can check your credit report easily through credit reference agencies such as Experian and Equifax.

2.     Work out your affordability

Before applying for a mortgage you should work out for yourself what you can afford to pay each month. Adding up how much you spend on monthly outgoings will allow you to see what you have left to use towards your mortgage. It will also allow you to see which areas you can cut back on or where you can make any lifestyle changes if you need to in order to be able to afford your mortgage payments.

Our online calculator can help you to work out how much you can borrow.

3.     Save as much as you can!

No matter how good your credit score is, or how low your monthly outgoings are; if you don’t have a sizeable deposit then it’s unlikely you’ll be able to get a mortgage at all. For more information about deposits take a look at our beginner’s guide to mortgages article.

You will also need to ensure that you have enough savings for other costs that will arise when buying a house. This includes any legal fees as well as stamp duty if the property is worth more than £125,000.

If you haven’t got one already, a savings account is essential when saving for a house. You should set up a direct debit from your current account to your savings account each month. If you think you might be tempted to access these savings before this point then you might want to consider a fixed rate bond.

4.     Carefully manage your bank accounts

Nothing looks worse to a mortgage lender than a badly managed bank account. Manage your money responsibly to ensure your bank accounts are in the best shape before applying for your mortgage. Don’t go overdrawn and make sure you pay off any credit card payments on time.

If you have any outstanding debts from previous loans then it’s a good idea to try and pay these off before applying for a mortgage. Lenders will want to see that you have as few debts as possible when applying for a mortgage. This will help with your affordability and also help to improve your credit rating. If you do have any large loan repayments to make then you should consider repaying these before making your mortgage application.

5.     Timing is everything

You should apply for your mortgage when your credit score and bank accounts are in good shape. If you’ve recently had more money coming out of your account than usual then it might be a good idea to wait a few more months so these transactions don’t show on your most recent payslips.

You should also try to avoid getting a mortgage if you’re between jobs. If you’re in your probationary period you are likely to be considered as higher risk by lenders. Some will only consider your application if you have been in your role for over a year. If you’ve started a new job in the last few months then it’s a good idea to wait until you’ve passed your probationary period until you apply for a mortgage. If you’re looking to change jobs then you should wait until your mortgage has been accepted before you apply for a mortgage.

You should also wait for the best time in your own life to get a mortgage. This is a huge financial commitment that you should make sure you’re ready for so make sure it’s right for you.

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Beginners guide to mortgages

Getting a mortgage is probably the biggest financial commitment you will ever make. But if you’re a first-time buyer, you might not know where to start. Here we have outlined the main things you need to know about getting a mortgage.

Beginners guide to mortgages

Getting a mortgage is probably the biggest financial commitment you will ever make. But if you’re a first-time buyer, you might not know where to start. Here we have outlined the main things you need to know about getting a mortgage.

What is a mortgage?

A mortgage is a large loan used to help buy property or land. This makes up the difference between the total cost of the property and the deposit (lump sum payment). Interest and mortgage fees will be added onto the cost of your mortgage for borrowing the money.

Mortgages are secured against the value of your house until it’s completely paid off. This means that if you fail to keep up with your repayments then your mortgage lender has the right to repossess the property to sell and get their money back.

Do I qualify for a mortgage?

You can get a mortgage if you’re 18 or older and in full-time employment. Most lenders will require that you’re no longer in your work probationary period and that you have a good credit score. However, there are still options available for people who have a poor credit history.

How much can I borrow?

The amount you can borrow is based on your yearly earnings; as well as your partner’s earnings if you’re taking out a joint mortgage. Our online tool can help you work out how much you can borrow if you’re unsure.

No mortgage provider will allow you to take out a mortgage that you can’t afford. The lender will also want to see at least 3 months’ worth of bank statements to determine how much you can borrow for a mortgage.

How big a deposit should I put down?

Although there isn’t a set amount that you have to put down as a deposit, most lenders require around 20% of the house’s value. For example, if you’re looking to purchase a £200,000 house, then you should look to put down a deposit of £20,000.

The bigger the deposit you put down, the cheaper your mortgage repayments will be as you will have a smaller mortgage to pay back.

Consider your LTV (Loan to Value)

A larger deposit will reduce your LTV (Loan to Value), allowing you to get a better deal. Your LTV is the size of your mortgage in relation to how much your property is worth. High LTV mortgages (above 80%) won’t guarantee the best interest rates as these are considered riskier for lenders.

If you’re in a position where you need to secure a high LTV then you’re more likely to get approved if you have good credit score.

How much will I pay each month?

Your monthly repayments will be based on a number of factors. This includes your LTV, the type of mortgage you take out and the length of the term:

Types of mortgages

Fixed rate mortgage – Where the interest rate stays the same for a set period of time, as do your monthly payments.

Variable rate mortgage – Where the interest is set at the lender’s SVR (Standard Variable Rate), considered as their basic mortgage.

Discount mortgage – This is the same as a variable rate mortgage but a reduction is applied for a certain length of time.

Tracker mortgage – This is similar to a variable rate mortgage but instead, they track a nominated interest rate, usually the Bank of England’s interest rate, rather than the lenders SVR.

Capped mortgage – This is also the same as a variable rate mortgage, however, the interest rate can never rise above a set “cap”.

Offset mortgage – These mortgages are linked to a savings account as well as your current account. Each month the lender will look at what you’ve put into savings and deduct this from what you owe on your mortgage.

Whichever type of mortgage you agree to, you will be contracted for a number of years before you are able to renew or remortgage by going elsewhere to get a better deal.

Mortgage term length

On average mortgages run for 25 years, but terms can be longer or shorter than this depending on your situation. As affordability is more prevalent with house prices increasing, many people are choosing mortgages with longer terms in order to get a lower monthly payment.

If affordability isn’t an issue for you then choosing a shorter term could be a better option as you will pay less in interest over time.

If necessary, you can extend or reduce your mortgage term; however, there may be an additional cost to this. You should always ensure that you can afford the change in monthly payments if you choose to change your term.

Applying for a mortgage

The process of applying for a mortgage is relatively straightforward. You will need to provide information about yourself as well as information about the property you are looking to purchase.

When applying for a mortgage you should avoid making multiple applications in a short period of time. This is because lenders will be able to see each of these on your credit file, suggesting that you might be desperate for finance.

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