Ask The Experts - Help to buy scheme

Just really wanted to see what options were out there if you're currently renting and so it's much more difficult to save the deposit if you're starting from scratch and starting to plan where really you need to look financially to, whether or not there's 100% mortgage out there or if you actually do need something and if so what sort of level of deposit are they looking at now. Interesting question, of course there is help and we can discuss that for people who have got small deposits. We'll start with you Craig, is there such a thing 100% mortgage anymore? Not that I'm aware of, certainly none of the main big high street lenders do 100% mortgages. A few of them will do 5% deposit mortgages that they'll do on their own and some of the smaller building societies where you only have to put down a 5% deposit and then the big thing at the moment is the government Help To Buy Scheme which quite a few of the lenders are taking part in the government basically indemnifies the lender if there's any issues. So it's kind of a transaction between the lender and the government, it's not something the borrower has to get involved in. There are various schemes that are 5% deposit mortgage but like I'd say you pretty much, for most lenders, need at least 5%. Clearly the more you can put in so it tends to be there's different rates and the more you put in the better the rate gets so if you can put in 10% you'll find that the mortgage rate will go down by possibly up to 1% and then again 85% is another place where the rates change and they come down continually until about if you're lucky enough to have a 40% deposit then the rates get really cheap. So one of the benefits of saving a big deposit is that you'll normally get a cheaper rate but it all depends on how long you want to wait, what type of house you want to buy, etc... Help To Buy has made a big difference, I mean a lot of people have rushed to take advantage of it...? Absolutely, it has been an incredible scheme in which people were very sceptical about even the first sets of figures that have come out are really encouraging that it is helping people. ...but you would probably get a better rate with Help To Buy would you instead of getting a 95% mortgage? Let me just clarify Help To Buy, Help To Buy Part 1 -- came out last April is basically only available on new build houses, so basically new build houses or flats. That's the shared equity element where you put 5% in and the government puts up to another 20% in and then the lender lends 75%. The advantage of that is it allows you to buy new build houses which is great. But also your mortgage payments tend to be fairly low because the bit the government has lent you, the 20%, you don't pay any interest on until after five years. Actually say you buy a house to £100,000 -- you need to put £5000 in, the government puts 20% in and the lender puts 75% in -- you're only paying interest rates on £75,000 rather than normally you'd be paying on £95,000. So it can make it quite affordably although you do have to be prepared after five years you have to start paying interest on the 20% part. So that was the first scheme, last April, which was new build only. Then the bit that's getting a lot of publicity at the moment is the second part of Help To Buy which is the 5% deposit mortgage, that's available on all homes -- that's new build, second hand homes, it's not just for first time buyers it's also for people to move home -- it's available for properties up to £600,000 but clearly you've got to have a lot of money to be first time buyer buying a £600,000 house but believe or not they do exist. The difference with the scheme is that the government don't own any of the house. So basically you put your 5% deposit in, the lender puts the 95% loan in, you pay on the full 95% interest rates and you pay that back over time and there is no government involvement. The only government involvement is if you were to default -- so if you couldn't pay the mortgage back and the lender were to lose money the government would pay that money back so it basically insures the lender. The reason the government did that is because 95% mortgages have long been part of the lending kind of picture -- it's only been the last few years since the credit crunch that lenders have been more cautious because of all the problems they had and started basically only lending to 90%. So the government said well actually we think we have lots of first time buyers who can't get into the property market because they can't save up the deposit so actually if you start learning to 95% we'll kind of insure part of it to make sure you don't lose money. Obviously the lender pays a fee for that so it's a bit like an insurance product. So there's two different parts to Help To Buy so it's important that you understand if you're talking to your mortgage provider or a house seller or new build buyer that you understand which one is doing. Miles, it's popular, it's new so we haven't seen any of the pitfalls yet but is there anything to be wary of with Help To Buy? Maybe reasons not to rush into it? If we look at the new homes scheme obviously as Craig said, whilst obviously it's a great scheme for a home buyer if you have got stretched affordability then a 20% interest free loan from the government is something to consider but you obviously have to start paying interest on that in 5 years and if property prices don't go up then as well you could be trapped in that property because you obviously don't own as much of the equity as you would do. It has been massively popular -- some developers have effectively sold out of their developments because of it. It has to a degree lessened the negotiating power of the buyer basically because developers are selling those properties more quickly -- and you are restricted to a new build property. So with the Help To Buy Phase 2 on existing property obviously it gives you a lot wider market to look at. But the great thing is there is evidence already that it has started to create greater competition in the 5% deposit market and that's really the purpose of Help To Buy and if it can be ended early, it's scheduled to last for 3 years, then everybody will be happy that the mortgage market is functioning again and there are 95% loan to value competitive mortgages out there. Miles we had a very specific question about Help To Buy that came from Emma via Twitter. She says she wants to use Help To Buy to build an extension and sell in 6 months, are there terms and conditions that would prevent her from doing this? Let's assume that it's Phase 2 of Help To Buy and it's an existing property that she wants to extend then no, it's just Help To Buy Phase 2 is just like a traditional mortgage -- no caveats attached at all. You don't have to stay for a certain amount of time? You can't own another property though? You don't have to be just a first time buyer and another misnomer but you can't own another property.. Either in this country or abroad; which not many people know. Is that true with both the Help To Buy schemes? Yes absolutely is yes. Those who are going to be helped by Help To Buy and it helps them get onto the housing ladder are going to love Help To Buy and there's people -- politicians, economists, bigger picture saying it's a bad thing. But the irony is once you've actually bought your first home; you do actually want it to go up in value as well.