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Help to Buy – Latest

by Ridley&Hall in Liz Wallis, Residential property, Ridley & Hall Solicitors posted October 8, 2014.

Lloyds Banking Group, the UK’s biggest mortgage lender, has cut the amount it will lend through the Help to Buy equity loan scheme to £150,000, down from £500,000.

The reduced limit is below the £155,975 average mortgage required by people who bought new build properties through the government scheme during its first 15 months of operation.

However, the banking group said the “majority of shared equity and shared ownership applications we receive are below £150,000.”

The Help to Buy scheme loan allows people with a 5% deposit to buy new build properties with the ‘help’ of a 20% equity loan from the government – meaning they require a mortgage of 75% of the property price from a lender rather than 95%.

During its first 15 months, the average price paid for a new-build home was £207,967.

The cap introduced by Lloyds Banking Group – which applies to all of its shared ownership and equity loans across Lloyds Bank, Halifax and Bank of Scotland – is said to be “temporary.”

Liz Wallis, Licensed Conveyancer at Ridley & Hall, says, “There have been rumblings that the government will at some point in the not so distant future end or phase out the Help to Buy scheme so the news, whilst a surprise to some, is perhaps a sign of the inevitable.

“Whilst not having personally handled for a buyer a matter under the Help to Buy Scheme – perhaps those buyers in the region are ‘holding their own’ – It is interesting that the press and hype over the scheme ‘sells’ it as a 20% loan but unlike perhaps the loan you obtain from a mortgage lender which on repayment is calculated as to unpaid capital and interest, this is in fact an equity loan.  This means if the property is sold on at a later time, that payable under the loan is set at 20% (or other percentage borrowed) of the value at the time of the sale.  Whilst in a downwards market, this means that they take 20% of the ‘hit’ against the value of the property, in an upwards market 20% of the increase in value would be repayable.  This may not be ideal in a property ripe for renovation where the buyer may put in the funds to carry out works but lose potential profit by that investment on repayment of the loan!  It should also be noted that a home owner who benefitted by the scheme then wanting to pay off that loan and remove it from their deeds would pay an amount equal to 20% of the value of the property at the time repayment is envisaged.  That said, there is the saying that you don’t get something for nothing and another might argue that had you not been able to purchase the property in the first instance, there would have been no profit to be made!”

liz-wallis-headshot

For more advice on information on the Help to Buy scheme, or conveyancing matters in general, please contact the Ridley & Hall Property team on 01484 538421 or via e-mail.

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