GETTING BRITAIN MOVING A Guide on Help to Buy
GETTING BRITAIN MOVING A GUIDE ON HELP TO BUY
An Introduction of Help to Buy Help to Buy: Explained
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The Equity Loan
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The Mortgage Guarantee
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The story so far
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Barratt Homes
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HELP TO BUY IS AVAILABLE FOR ANYONE WISHING TO BUY A HOME NOT JUST FIRST-TIME BUYERS
INTRODUCTION Since 2007, the UK housing market has faced significant problems. Following the economic crisis, people across the country were seriously affected when it came to buying property. Suddenly it was much more of a struggle for both first-time buyers and existing homeowners to make their first, or next move, up the property ladder.
and looking to make their next move – perhaps due to a growing family - lost significant value in their home. Without the ability to make a profit when selling, there was little chance of affording the next move.
With house prices dropping, the number of home completions plummeted. This was to have a knock-on effect on the new homes being built in the UK, and the number of jobs generated through their construction.
During this time, the biggest problem encountered by would-be first-time buyers was getting the deposit together for their starter home. Borrowing from mortgage lenders became increasingly difficult, with many often requiring at least 20% of the purchase price. This had effectively priced out a number of people, causing them to stagnate in the rental market. With house prices dropping consistently, those who already had a foot on the property ladder
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KEY DATES Help to Buy was first mentioned during the 2013 Budget announcement. Amongst a number of policies aimed at assisting with the growth of the economy, Help to Buy was outlined as a strategy to breathe new life into a dwindling housing market. March 2013
April 2013 October 2013 January 2014 March 2014
The Chancellor George Osborne outlined the Help to Buy scheme, detailing the two different elements (The Equity Loan & The Mortgage Guarantee) The Equity Loan comes into play with immediate effect The Mortgage Guarantee is introduced 95% mortgages become available through the Mortgage Guarantee Government confirm Equity Loan element of Help to Buy will be extended to 2020.
A word from Barratt Homes Upon the introduction of Help to Buy, Mark Clare Group Chief Executive of Barratt Homes commented that the Government had “removed a major blockage in mortgage affordability”. Stating that “Help to Buy is much bigger than anything we’ve seen before”,
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he continued: “Help to Buy does not only provide an opportunity for homebuyers to get on the property ladder. With improving demand for new homes we can increase the number of homes we build and we can open new sites. That’s a real boost for local economies and will underpin new local jobs.”
WHAT IS HELP TO BUY? Help to Buy is a Government backed initiative which can help buyers purchase a home with just a 5% deposit. It is aimed at both first-time buyers and existing homeowners who wish to move home, but can’t afford to pay 20% of the purchase price for the deposit. Two distinct schemes
Regional differences
Help to Buy is split into two schemes.
In England, Help to Buy is available on properties to the value of £600,000, whereas in Scotland the maximum house price is £400,000, and £300,000 in Wales.
1. The Equity Loan 2. The Mortgage Guarantee Both the Equity Loan and Mortgage Guarantee sit under the same umbrella of Help to Buy, but there are specific differences between the two.
SCOTLAND £400,000
Whilst both schemes offer the chance for a minimum deposit of 5%, they differ in relation to the type of home you can buy as well as the Government assistance on offer.
5% deposits Giving people the option to buy property with a much lower deposit has opened up the housing market to those who, without it, would be unable to get their first, second or even third home.
House type purchase
ENGLAND £600,000
WALES £300,000
Help to Buy Equity Loan
Help to Buy Mortgage Guarantee
New Build Properties
All Property Purchases (subject to lender criteria)
Maximum house price Customer Deposit Required Government Equity Loan Mortgage Required Mortgage Guarantee Buy to let Fees
£600,000 5% Up to 20% 75% Not applicable Not applicable Not applicable
£600,000 5% 0% 95% Up to 15% Not applicable Yes
The table illustrates both the Equity Loan and Mortgage Guarantee elements of Help to Buy in England.
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1 THE EQUITY LOAN The Equity Loan is only available to those who wish to buy a new build property. It is not available on pre-owned homes. The scheme works like this: • Buyers need a minimum of a 5% deposit to be considered for the scheme
EQUITY LOAN BASED ON A PROPERTY PURCHASE PRICE OF £200,000: £10,000 (5%)
• They will then be provided with a loan of up to 20% of the value of the property – this is termed an Equity Loan
£40,000 (20%)
• In order to make the purchase, the buyer will be required to get a mortgage of up to 75% of the property’s value
Equity Loan: The small print When signing up for any loan, it’s important to understand any small print. The Equity Loan is no different. Buyers must be aware of the following information:
£150,000 (75%)
CASH DEPOSIT EQUITY LOAN
- The loan is interest free for the first 5 years - From the sixth year onwards an admin fee will be required to be paid
YOUR MORTGAGE
2 THE MORTGAGE GUARANTEE MORTGAGE GUARANTEE BASED ON A PROPERTY PURCHASE PRICE OF £200,000: £10,000 (5%)
The Mortgage Guarantee Scheme is available on all types of home. Whilst this opens up 95% mortgages for pre-owned properties, it is also available on new builds too. The scheme works like this: • Buyers need a minimum deposit of 5%
£190,000 (95%)
DEPOSIT MORTGAGE
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• Up to 95% of the property’s price can be borrowed from a mortgage lender • The Government will then guarantee any mortgage borrowing above 80% of the property’s value if there was a default on the mortgage payment
WITH HELP TO BUY YOU COULD
BUY A HOME WITH JUST A
5% DEPOSIT A Helping Hand from the Government One of the key variations between the two schemes is the stage at which the assistance comes from the Government. Through the Equity Loan, buyers are assisted with actually buying the property. The Government help through the Mortgage Guarantee only occurs if the buyer defaults on their mortgage payments. In the case of the later, this assistance is going on behind the scenes. Specifically, the individual purchasing the property is in the exact same position as anyone doing so with a standard mortgage. They are responsible for repaying the entire amount borrowed.
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HELP TO BUY: THE STORY SO FAR UK Mortgage Approvals 53, 504 62,226 71,638 76,947
(highest level since 2008)
70,309
First-time buyers Council of Mortgage Lenders (CML) members granted 268,800 first-time buyer mortgages during 2013. This is 44% of the total of 605,100 mortgages offered for house prices during the 12 months, the highest percentage since 2000. CML’s Director General, Paul Smee “In 2013 there has been a resurgence in the mortgage market with year on year growth for all types of borrower. “First-time buyers are an especially important factor in driving the market forward in 2013 as improved economic conditions,
as well as the introduction of government schemes like Help to Buy, have given the opportunity for them to enter the market and become homeowners.”
Jobs 3,000 more jobs created at Barratt Homes sites during 2013, with another 3,000 on the way. In addition to this 1,100 apprentices, graduates and trainers will be employed over the next three years to make sure the right skills are in place.
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HELP TO BUY & BARRATT HOMES Mark Clare commented on the impact that Help to Buy has had on Barratt Homes. In his review, delivered in Q4 2013 he stated: “Our sales performance in our second half was excellent, reaching 0.66 (2012: 0.56) average net private reservations per active site per week, up 17.9% on last year. We saw a particularly strong sales performance in the final quarter of the financial year following the announcement of the Help to Buy (Equity Loan) scheme. “We saw improvements in private reservation rates in all our regions of the country.”
Completions Q4 2013
17.7% of
completions (including JVs) were in Scotland and northern England
17.7%
in eastern England and south Midlands
11.6%
WATCH OUR HELP TO BUY VIDEO
6 MONTHS ENDING 31 DECEMBER 2013 BARRATT HANDED OVER THE KEYS TO
6,195 NEW HOMES. The future
Looking forward, Help to Buy is expected to continue driving new home completions. Mark Clare commented: “Current market conditions are very positive. We have seen a significant step-up in consumer demand and mortgage supply, enhanced by the introduction of the Government Help to Buy scheme. “We are targeting total completions of c. 16,000 units (including JVs) from our current operating structure and, given continued strength in the market, believe this is achievable in the year to 30 June 2016. We continue to see a strong pipeline of land acquisitions that meet or exceed our hurdle rates with no assumption of future price inflation.” Barratt is also looking to increase the number of sites it is currently working on from 380 to 450 in the near future.
in London
19.2% in
the south west.
16.4% in
southern England
As the land we are buying today is for the homes we will be building in 2016 and beyond, the industry needed a longer term framework for Help to Buy. We can now invest with more confidence and continue to increase production creating 3,000 new jobs on our sites, and also supporting the 5,500 supplier companies that work with us. -Mark Clare
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0844 5566 166
www.barratthomes.co.uk
Registered office: Barratt House, Cartwright Way, Forest Business Park, Bardon Hill, Coalville, Leicestershire, LE67 1UF