It is approaching the time when the first batch of borrowers on the Help to Buy scheme, will reach the end of their two year fixed term. Could they be forced now onto a higher rate of interest as they are stuck with their existing lender’s standard variable rate (SVR)? We can help you with your Help to Buy questions.
The Help to Buy scheme
The scheme introduced in May 2013 to help with the lack of options for first time buyers, was welcomed by many professionals who were simply unable to save enough for a sufficient deposit to meet the rising house prices.
With the Help to Buy Scheme, the government contribute 20% of the value of a new build property as an equity loan, which is interest free for five years. This leaves homeowners to save just 5% deposit with the remaining 75% mortgaged.
However, for many borrowers on the Help to Buy scheme they will now be needing to renegotiate a new term for their ongoing mortgage requirement.
Do you have sufficient equity in your property?
Those with sufficient equity in their property may be able to secure a new Fixed Rate with their current lender.
Yet equity level requirements quoted by certain banks are often in excess of 15%, not taking into account the 20% equity loan provided by the government. Would you qualify?
Exiting the Help to Buy Scheme
If the SVR is unaffordable with the current lender and there isn’t sufficient equity to negotiate a new Fixed Rate, then another option is to exit the Help to Buy scheme.
Here, the equity loan must be repaid, in full or there is an instalment option.
Whilst this may seem non-viable and it could leave borrowers with very little equity in their property at the end of the day, it may still be the best option for some, particularly those property owners in London and the South East of England, where property prices have increased the most in the last two years.
This option gives them the freedom to then enter into a new Fixed Rate deal with another lender, which may, unfortunately, still be at a higher rate of interest than the more competitive arrangements available today, however, the higher the house price reaches, the higher the 20% equity payment will become too.