With phase two of the Help to Buy scheme recently launched there is some confusion as to what is on offer and who is eligible for what. With this in mind we have come up with a guide so landlords can find out what buyers can get from the scheme and how this may alter the market in the next couple of years.
The second phase of the Help to Buy scheme was launched earlier on in the year, which means that properties worth up to six hundred thousand pounds are now eligible. Furthermore, those who have a deposit as little as 5 per cent now have more mortgage options available to them.
The scheme isn’t just for new build properties either – buyers can purchase a pre-owned property in England, Scotland and Wales regardless if they are first time buyers or current home owners, although the scheme is not available for buy to let investments.
Getting a Mortgage
Whilst the scheme is aimed at getting the housing market moving again, the increase in demand and the lack of supply is pushing house prices up. Although it is now easier to get a mortgage at a cheaper rate there is a high chance that if you only have a small deposit you will also face some harsh affordability criteria. If you have a good credit rating, can prove you can make the repayments and have a 5 per cent deposit you are likely to be accepted for a mortgage, but if you can stretch to a 10 per cent deposit mortgage rates will come down significantly. The bigger the deposit the better mortgage you will receive.
What are the Risks?
One of the biggest risks with using the Help to Buy scheme is that you are only required to have a very small deposit. This means that the amount you are borrowing is extremely high and therefore have a lot of money to repay. Based on the amount that is still left to repay you also have to add interest rates. At the moment they are abnormally low but in the future they are likely to bounce back up. If they do bounce back up you need to make sure that you will still be able to make the repayments otherwise you will find yourself in trouble.
One of the questions that many ask about the Help to Buy scheme is the saleability of the eligible properties. There are no implications on reselling your home if you have used the scheme to purchase it as a result of it not being a shared ownership. Another main concern is the creation of another housing bubble and negative equity. The property market is just as unpredictable as any other market and prices will fluctuate for various reasons, one of them being, as mentioned earlier, supply and demand. Another factor is the location that you are purchasing in. Whilst there are reports of prices rising considerably in some areas compared to five year ago they are still lower than they were. This supply should be equalised by the fact that the scheme is also open to current home owners too who will be selling their properties and moving on.
The Help to Buy scheme is scheduled to last for three years ending in 2017 with the thinking behind it being that the mortgage market will hopefully be in a better state after the scheme has ended and helped smooth out fluctuations in the market.
As a landlord, if you find that many tenants are now joining the property ladder it is important to make sure that your landlord insurance policy covers you for periods when your properties are empty.
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