The Help to Buy Warning – Don’t Get Unwittingly Trapped!!
Mortgage brokers have warned that first time buyers who have purchased a home through a shared equity scheme could be left trapped on an uncompetitive mortgage rate in the future due to little known rules of some of the country’s biggest lenders.
Brokers warn that a handful of banks that are still offering shared equity mortgage deals lend only to either new buyers or their own customers. As a result, existing home owners have only a limited choice of rates when their current or variable rate deal ends.
Thousands of borrowers who bought their first home with the government backed FirstBuy shared equity scheme between 2011 and 2013 along with similar builder schemes could be affected and, if rules don’t change, first time buyers who have signed up to Help to Buy equity loan deals since the scheme launched could also be hit.
Some of the country’s biggest lenders provide mortgages to new buyers using popular government backed shared equity schemes under which buyers can put down a 5% deposit, take 20% equity loan from the government or builder and then arrange a mortgage for the remaining 75%. However, lenders can refuse to allow homeowners in shared equity arrangements to remortgage, potentially blocking them from accessing the most competitive mortgage rates available. Some lenders will only offer mortgages to existing homeowners if they first clear the 20% equity loan. Unfortunately the loan to value may not be sufficient to provide the funding to clear the equity loan.
Most borrowers expect to simply clear the loan only when they sell their properties and find at a point that they wish to refinance for a more competitive mortgage deal they have become trapped.
The issue is thought to become an increasing problem next year when the early Help to Buy mortgages on two year fixes come to an end. For many the choice will be staying with current lenders and taking a product transfer unless other lenders change their criteria.
Liz Wallis comments, “I wonder how many participants of the Help to Buy scheme have considered their position going forward in light of the above particularly at a time when the threat of an increase in mortgage rates is on the horizon. Even if that doesn’t come until 2015 or beyond, how many Mortgage deals on similar schemes will end to coincide with that rate rise and the resultant homeowners find themselves with limited choice on re-finance options? After all, it is not just about getting onto the property ladder but staying there!”
For more advice about help to buy mortgages, please contact us on 01484 538421 and ask to speak to a member of the Residential Property team.