Help to Buy: Mortgage Guarantee

The Government’s Help to Buy Scheme was introduced in twophases, the first in April 2013 and the second in January 2014 (although applications for phase 2 were being accepted from October 2013).

The first phase, based on the provision of an equity loan, is only open to those people who were purchasing a newly built house up to a maximum value of £600,000.00. The second phase, based on a mortgage guarantee, is open to any person wishing to buy a house whether new build or other.

In part I we provided an overview of the Help to Buy Equity Loan scheme. In this article we provide an overview of the Help to Buy Mortgage Guarantee scheme.

Under the Help to Buy Mortgage Guarantee scheme the Government enables the lenders to purchase a guarantee on the mortgage loan that they provide to the house buyer. Under the terms of the guarantee, the Government is effectively indemnifying the lender from any losses they may incur should the borrower default on the mortgage that has been provided by the lender. With the guarantee in place, the lender is able to provide a high loan to value mortgage of 80-95% and the borrower only needs to provide a 5% deposit towards the purchase of the house.

In order to qualify for the Help to Buy Mortgage Guarantee scheme, the borrower must meet the following criteria:

1.       The house that the borrower is buying must be in the UK and can be either new build or an existing house.

2.       The market value of the house being purchased must not exceed £600,000.00

3.       The mortgage must be on a repayment basis it cannot be an interest only mortgage.

4.       The borrower must use the house as their main residence and must not own any other property.

5.       The borrower cannot rent the house out.

6.       The borrower must be a private individual and not a company.

7.       The Mortgage Guarantee scheme cannot be combined with any other Government scheme.

The Mortgage Guarantee scheme is only available from lenders who are registered for the scheme with the Home and Communities Agency.

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