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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Help to Buy: mortgage guarantee available 3 months early

Help to Buy: mortgage guarantee scheme to launch this week.

A scheme to help thousands of people buy their own home will be launched next week – three months earlier than planned.

The scheme was due to start in January 2014 but the government has announced that people will be able to start applying for the new mortgage guarantee from next week.

Several high street banks will be offering the new Help to Buy mortgages to customers, ranging from 80 to 95 per cent of the property’s value.

The mortgages – backed by the government – will help thousands of people buy new or existing homes up to a maximum value of £600,000.

It is aimed at people who cannot get on the property ladder – or move to a new home – because they cannot afford the large deposit required, often up to 20 per cent.

Under the new mortgage guarantee scheme, the buyer would only need a 5 per cent deposit.
The government and the bank then jointly guarantees up to the next 15 per cent of the property’s value, in return for a fee paid for by the lender.

To be able to offer the guarantees ahead of schedule, the government will be allowing lenders to start writing loans that will become part of the scheme once it opens in January.

Because lenders know that they will be able to purchase a guarantee on these loans when the scheme opens in January, it means that they are able to offer high loan to value mortgages, much sooner.
Only repayment mortgages will be offered under the scheme.

There will be tough checks to make sure buyers can afford their mortgage payments and the borrowers income will be verified.

The scheme will not include interest-only or self-certified mortgages.

The new mortgages will not be available to people with a history of difficulties making debt repayments.

Official statistics show that mortgage lending is around half the level it was before the economic crisis, even though mortgage rates are at their lowest for five years.

Announced by the Chancellor at Budget 2013, the Help to Buy scheme has two parts, equity loan and mortgage guarantee.

Under the equity loan scheme, the government provides a loan of up to 20% of the value of a new build home, interest free for the first five years.

The Help to Buy: mortgage guarantee scheme will be available for three years up to January 2017. Every September the government and the Bank of England Financial Policy Committee will review the impact of the scheme and examine whether the fees or the price cap should be adjusted. If any future government proposed to extend the scheme beyond its three year life the FPC would need to agree.

Link to .gov information here