Much has been written and publicised in recent months about the Help to Buy scheme offered by the Government.
This article concentrates on the first part of the Help to Buy scheme, known as equity mortgages. Despite a lot of promotion, this firm hasn’t seen huge numbers of equity mortgages but they do appear to be becoming slightly more popular.
In order to qualify, any borrower must have at least a 5% deposit and they can secure anything between 10% and 20% of the purchase price by way of a loan from the Government. They will no doubt be getting a separate mortgage with one of the more traditional lenders as well. The Government loan is interest-free for five years and is only repayable when the property is sold. In an effort to encourage the home owners to repay the Government sooner rather than later, the loan does start incurring interest from the sixth year onwards and it is worth bearing in mind that this rate of interest increases each year so the payments made to the Government from year six onwards can become quite significant.
Anyone using the scheme must not own any other property in the UK or worldwide. One practical consideration is that if someone did use this scheme and then, for example, inherited another property following the death of a relative then, technically at least, they would be in breach of the agreement with the Government and would have to repay that full amount! It remains to be seen how this would be dealt with, but practically speaking it is hopefully not going to be a problem.
One particularly important thing for any borrowers to look out for is that if they make alterations to the property, then they would need to get the consent of the Government to this. If they do that correctly, then any increase in value for the property that could be attributed wholly to the additional work done (such as the addition of a conservatory) would not benefit the government when they come to be repaid. If the home owner does not obtain the Government’s consent to this then if and when the property is sold at an increased value as a result of the work done and paid for by the home owner, then the Government will take their slice of that increase as well!
Another thing to look out for under this scheme is that the funds that the Government pay do not (like a more traditional mortgage) pass through the buyer’s solicitor and end up going from them into the hands of the seller’s solicitor. Instead, the Government funds go straight from the Government to the solicitor acting for the seller. There have been some suggestions that selling builders would try and prevent completion taking place if the Government does not get the money to them on time. The regulations specifically aim to prevent this happening but it is certainly worth checking this with any selling builder before pressing on with the scheme because, from a practical point of view, there are not many things worse than getting to the day of completion only to find out that through no fault of your own you are not able to pick up the keys as planned!
All in all, there is a lot about the scheme that is quite positive. There is a mountain of paperwork that gets sent to your solicitor so it may be that you end up having to pay slightly higher legal fees when buying with the benefit of this scheme, but as time passes the scheme will become more and more familiar to most solicitors so that “additional charge” should end up being less and less.
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