New Buy Mortgages

New Buy: Government Mortgages Schemes

The government introduced 2 new mortgage schemes during 2013, with the hope of stimulating the housing market, especially via people with minimal deposits.

New Buy 1

This scheme is available on new-build property ONLY and allows a borrower to purchase with a smaller deposit than would normally be required. New Buy is available whether you’re a first-time buyer or an existing borrower looking to move home. The scheme is being offered through a number of builders and developers and the applicant can buy houses or flats with just a 5% deposit but must fit the criteria of both the new buy scheme and the chosen lender, for instance, the applicant must not have any other properties. This is an ideal opportunity for first time buyers with a minimal deposit as well as existing borrowers with little equity in their current property to purchase a new home. As long as you have your own 5% deposit, you can get a 95% mortgage on your chosen property.

The reason this scheme is available is that the government pays a set amount (usually 7% of the purchase price) into an account as an insurance to help cover the lender’s cost in the unfortunate event of repossession.

Mortgage guarantee scheme

This is the second part of the Government’s Help to Buy scheme, known as “Mortgage Guarantee”. It again allows prospective borrowers to purchase with a deposit as low as 5%, but the government provides an incentive to the participating lenders and covers the first 15% of the loan should the borrower default and the property be repossessed. This scheme helps both first time buyers and home movers but is NOT limited to just new properties, thus aiding the housing market as a whole. The scheme has been designed to assist first-time-buyers with a minimal deposit and those wishing to move up in the housing market but have little equity in their current property. Most importantly, the borrower must be able to afford the mortgage and strong criteria will be applied. The purpose of the scheme is to stimulate lending to those without the capital funds for a large deposit.

At present, lenders are risk averse. This is partly due to the continuing financial crisis. Lenders simply don’t want to take the risk of lending to someone with a small deposit, only for them to default on the mortgage which after costs could potentially leave the bank with a house worth less than the amount owed. The government however has stepped in to cover the initial 15% should such an occurrence happen encouraging lenders to become more willing to lend. With rates starting as low as 4.99% and additional lenders coming on board to encourage competition, now is the perfect time to start looking for your ideal home. As with all government related schemes there are criteria you must meet before you are able to take advantage of the scheme and remember… Nobody knows how long this will last.