Saturday, October 19, 2013

Help to Buy - D C & Co's View!

So what is all the fuss about?
One camp is claiming the creation of a 'House Price Bubble' the other is saying that many would-be home buyers are going to be disappointed by the actual implementation of the scheme by lenders.
I have to say I'm with the latter view. Basically the HTB scheme doesn't put any money in buyers pockets. What it does is for those who have managed to scrape together 5% of the purchase price it places a form of guarantee with lenders for another 15% of the loan. This means that the buyer has to have sufficient income and financial status to qualify for a loan of that amount. The lender is encouraged to lend more with the comfort of the UK Taxpayer underwriting 15% of that loan. It is to be noted that the first banks to confirm they were adopting the scheme were those still part owned by the state. Were they persuaded by government?  Even with this guarantee the % rate charged is above the rate that buyers would be charged if they were actually able to place their own 20% cash deposit.
It is not just the rate charged that will upset the buyers but the very tight lending criteria. To qualify people will still have to have good jobs and substantial incomes. One has to ask if you can only stump up 5% then do you have the right income to qualify for the loan?
If I think back to 1984 when I bought my first house my deposit was about 10% so 90% loan to value mortgages were not unusual then and I don't see why they should be now.
Advice is take a look with a good independent financial adviser but don't get your hopes up that the dream home you promised yourself is within reach now. Generally, the lenders do not want to see mortgage costs exceed 55% of your post tax income but they will factor in potential mortgage rate rises.
Some further reading at the links below:

http://www.helptobuy.org.uk/
http://on.ft.com/19HV3Bd
http://bit.ly/1ekW96L
http://bit.ly/18jM5ss
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