Help for first-time buyers comes sooner

The launch of the Mortgage Guarantee element of the government’s Help to Buy scheme has been brought forward. David Cameron, Prime Minister, announced yesterday that Mortgage Guarantee – the second phase of the scheme announced in its March Budget – will become available as early as next week, rather than in January 2014. So what’s it all about?

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What is Mortgage Guarantee?

The Mortgage Guarantee part of Help to Buy is designed to give both first-time buyers and home-movers with small deposits a better chance of securing an affordable mortgage.

Under the scheme, you will only need to raise 5% of the property value, with the government providing a guarantee for a further 15%. This means that successful applicants will have access to 95% mortgage deals charged at rates typically offered to those with a 20% deposit.

Unlike the Shared Equity part of Help to Buy, the Mortgage Guarantee element applies to both new-build and existing homes. The maximum purchase price of £600,000 that the Mortgage Guarantee applies to is the same.

Why has the launch been brought forward?

House prices are rising at their fastest rate since the housing crash in 2008, and the government says it is worried that first-timers could be priced out of the housing market for good. David Cameron told the BBC: “I’m not going to stand back while people’s aspirations to get on the housing ladder, to own their own home, to own their own flat, are being trashed.”

Which lenders are offering the scheme?

Lloyds Bank and TSB were the first lenders to openly sign up to the scheme – but, despite the recent announcement, still plan to launch in January.

But in the last day, the banks have been joined by Halifax and Bank of Scotland (also part of the Lloyds Banking Group) and sister banks RBS and NatWest. None of these lenders has yet disclosed specific products or prices, but intend to ‘in the coming weeks’.

Regardless of the rates they reveal, none of these banks currently offers 95% mortgages so the reintroduction of these low deposit deals is already big news.

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Can anyone apply?

In theory, Mortgage Guarantee is a very flexible scheme. You can qualify whether you are a first-time buyer or a home-mover, so long as the home you are buying is not worth more than £600,000.

You won't be able to apply for the scheme if you have a second home or you're planning on renting out the one you are buying, however. And the Mortgage Guarantee cannot be used in conjunction with any other scheme such as Shared Ownership.

Applicants will also be subject to the same checks as they would with any other mortgage application, which means your credit score will have to meet the lender's requirements. You will also need to be able to prove you can afford the mortgage repayments.

Are there any downsides?

Critics claim Help to Buy will create a stampede of buyers which, combined with a lack of property stock, will push up prices even further and create a housing bubble. But Mr Cameron said he has been told by the Bank of England that this will not happen.

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