Friday, 8 November 2013

Do you understand the Help to Buy Mortgage Guarantee scheme?

According to an independent survey commissioned by the Building societies Association BSA Consumers who are looking to purchase their first home or move house are confused by the mortgage guarantee element of the government’s Help to Buy scheme.

The BSA survey suggests, 43 per cent of those actively looking to buy a residential property are confused about the benefits on offer through the scheme.

In addition, 31 per cent of consumers who are looking to buy or move admit they do not know whether there is a difference between a 95 per cent mortgage offered by a lender which has signed up to the scheme and a 95 per cent mortgage from a lender which hasn’t.

Results from the survey show that:

  • 18 per cent of first time buyers and 17 per cent of home movers believe that they can borrow more through this scheme than with a ‘standard’ 95 per cent loan.

  • 12 per cent of both first time buyers and home movers believe that their monthly repayments will be lower as a result of taking a Help to Buy: mortgage guarantee loan.
  • One in ten first time buyers (just 5 per cent of home movers) believe that the scheme will protect them if they cannot keep up their monthly payments.

  • 12 per cent of first time buyers (just 6 per cent of home movers) say that Help to Buy: mortgage guarantee will protect them if their house price falls.

  • 24 per cent of first time buyers and 22 per cent of home movers say that they are more likely to be approved for a Help to Buy mortgage.

In fact not one of these suppositions is true. The Help to Buy: Mortgage Guarantee Scheme has been designed to encourage more lenders to lend to borrowers with small deposits, increasing the availability of this type of loan. The mortgage that an individual consumer receives and the approval process they go through, are subject to the same lending rules whether a mortgage is inside the Help to Buy scheme or not. When considering the affordability of the Help to buy: mortgage guarantee loan, until the new FCA rules related to the Mortgage Market Review come into force in April 2014 borrowers may well be subject to stricter requirements then they would be otherwise.

The introduction of and the publicity surrounding the two Help to Buy schemes has had a positive effect on consumer confidence and is likely to increase the overall volume of higher loan to value ratio lending, as some banks get back into this market. Some lenders, particularly many building societies, have consistently offered loans requiring deposits of five or 10 per cent and continue to do so outside the Help to Buy Scheme. Borrowers may find that they have a wider choice than they expected when shopping around for a low deposit loan.

Paul Broadhead, BSA head of mortgage policy was quoted as saying: “It is unsurprising that some consumers are finding the Help to Buy: Mortgage Guarantee Scheme difficult to get their heads round. The situation has been complicated by the launch of two very different schemes both called Help to Buy.
“It is essential that providers offering loans under the scheme leave applicants in no doubt about the terms of their mortgage loan. I am particularly concerned that a reasonable minority of active first time buyers believe that they can borrow more than normal and that they are in some way protected – neither assumption is true. In fact a 95 per cent mortgage through Help to Buy: mortgage guarantee is exactly the same as a standard 95 per cent mortgage. It is vital that these myths are dispelled at application to prevent the possibility of consumers misunderstanding their mortgage loan and later feeling misled.”

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