With hundreds of thousands of people locked out of home ownership by lenders’ requirements for very high deposits, the government has launched a two-pronged plan to help matters for budget 2013.
Firstly, the current NewBuy scheme is being expanded and will be called Help to Buy.
The government’s scheme will offer £3.5bn over three years, to home-buyers who can put down only a 5% deposit.
This “shared equity” money will provide a further 20% down payment for their house purchase. The loan will be interest free for five years and will be repaid when the property is sold.
It is still going to be targeted at newly built homes, but will be open to anyone, not just first-time buyers.
Secondly, a new mortgage guarantee scheme will be launched by the government in 2014.
Open for three years, it will offer mortgage guarantees to lenders, so that they can feel secure in offering mortgages to people with only small deposits to put down.
The lenders will be able to buy this insurance from the government, but will be able to claim for part of their losses – if any – when a borrower defaults.
Specifically, if a borrower puts down a 5% deposit, the scheme will ensure most of the value of the loan that lies between 80% and 95% of the home’s value.
The chancellor said this would underpin £130bn of mortgage lending.
Both will only apply to homes worth up to £600,000.
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