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Wednesday, 20 March 2013

Budget 2013 - Help to Buy

You'll be able to read and hear about Budget 2013 ad nauseam elsewhere - but as it's relevant to property, here's a summary of the new "Help to Buy" scheme announced by the chancellor today.

It's made up of two key elements:

·         An “equity loan” - which is a shared equity scheme under which the government will loan buyers up to 20% of the value of a new-build home - available from 1 April 2013 and will run for 3 years.

·         A “mortgage guarantee” where lenders will be incentivised to make more mortgages available for people with small deposits to underpin £130bn of new mortgage lending - available from 1 January 2014 and again will run for 3 years.

Help to Buy

The shared equity scheme is restricted to new-builds; the mortgage guarantee scheme applies to all homes.

To access either Help to Buy product, buyers will need a minimum 5% deposit.

For both schemes, borrowers will need to meet "appropriate tests" to ensure they can pay back the mortgage, as well passing their chosen lender’s credit and affordability checks (which effectively means your income and credit history).

Subject to meeting the eligibility criteria and affordability checks, you’ll be able to use either Help to Buy scheme to purchase a property with a value up to £600,000.

Neither of the schemes is restricted to first-time buyers, so they're intended to help people to move up the housing ladder as well as get on to it in the first place.

The schemes are only available on capital repayment mortgages, not interest-only ones.

And they're only for owner-occupiers, not for the buy-to-let brigade; and not for corporate buyers either.

Here's some more of the detail.

Shared equity scheme

Remember it's for new-builds only.

You need a minimum 5% deposit and the government will lend you up to 20%; so you'll need to secure up to 75% lending from a bank or building society.

The government's loan is interest-free for the first 5 years, but from year 6  it's at 1.75% rising each year by RPI inflation plus 1% (so it could get expensive over time).

How do you get it?

Buyers will be able to access this through participating house builders and HomeBuy agents (from local housing associations).

Mortgage guarantee scheme

Here's how the mortgage guarantee is intended to work.

The buyer can't access the scheme itself.

The government will provide lenders with the option to purchase a guarantee on the high loan-to-value portion of the mortgage.

The government hopes this will incentivise lenders to offer a greater number of mortgages to buyers with small deposits.

It's up to lenders whether they choose to use the guarantee or not, and they set the price and the interest payable, not the government.

What it's not doing is guaranteeing your mortgage payments.

If a borrower’s property is repossessed, the government will cover some of the losses suffered by lenders.

It's only available for buyers who pay deposits of between 5% and 20% (not more, as the government says there are already sufficient mortgages in the market for those able to pay more of the equity themselves).

We'll have to wait and see how well "Help to Buy" really works in practice and whether it will herald an increase in housing development.

Other schemes, such as "Funding for Lending" have so far had only limited effect.

And there'll no doubt be plenty of debate over whether the government should be underpinning, in many areas, inflated property values with a policy that may see prices rise even further.

@afneil on twitter asks if it's a subsidy for sub-prime mortgages.

It's not without its risks.

The government also confirmed it would consult on enabling change of use from agriculture and retail uses to residential without the need for planning permission to “increase responsiveness within the planning system”.

There's little else for the commercial property world to cheer about however - nothing for instance on business rates or rates on empty property.

Here's another two headlines from the Budget related to environmental matters:

·         Pottery industry in Midlands to be exempt from climate change levy.

·         Tax allowances for investment in shale gas - the controversial process known as "fracking".

Finally, I don't do economic analysis - but if you're of a masochistic tendency, you could do a lot worse than have a look at this, this, this, this, this and this - a bunch of scary graphs circulated by @frasernelson on twitter.

Photo by RambergMediaImages via Flickr

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