According to the BBC, some 500 people a week have been taking advantage of the government’s latest scheme to get the housing market moving.

The Help to Buy scheme is an initiative to provide financial assistance to enable qualifying applicants to buy a new build property on a new development. Under the scheme, the Homes and Communities Agency can contribute an equity loan of between 10 and 20 per cent of the market value of an eligible dwelling.

Solicitor Laura Pyatt of the Ansons property law team outlines the scheme.

Eligible property

The Scheme applies to homes which are fit for occupation, have an NHBC guarantee or similar warranty, are valued at below £600,000 and are not provided as affordable housing in satisfaction of a planning agreement. There are other conditions but these are the main considerations.

Eligible purchasers

The scheme is only available to an “eligible purchaser” in England (Scotland and Wales have different schemes) who satisfies the criteria issued by the Homes and Communities Agency (http://www.homesandcommunities.co.uk/help-to-buy).

Importantly, they must not possess an interest in any other dwelling, so the scheme cannot be used to purchase a second home.

The purchaser must also be taking out a first charge with an approved lender. Consequently, the scheme is available to first time buyers and house movers but not property developers.

Loan details

The equity loan is for a term of 25 years. The purchaser can purchase a property with as little as a 5 per cent deposit (much less than many banks now accept) and the reservation fee shall not exceed £500.

On-going costs

There is no charge for the first five years. In year six, borrowers will have to pay a 1.75 per cent annual fee. This fee will rise by 1 per cent above the Retail Prices Index (RPI) measure of inflation every year after this time.

Repayment

As this is an equity loan, the repayment sum will depend on the value of the house when you eventually sell it. For example, if the loan is 20 per cent of the purchase price, the purchaser must re-pay 20 per cent of the sale price when it is sold. Therefore if the value of the property has increased then the sum to be re-paid will increase and vice versa.

2014 – Phase 2 of scheme

Details of the second phase of the Scheme have recently been unveiled and will be introduced in January 2014. A mortgage guarantee scheme will give buyers of all properties (not just new build homes) the ability to borrow with only a 5 per cent deposit.

The hope is that lenders will be more likely to offer mortgages, if they know the taxpayer is underwriting a proportion of their loans.

Provided the property is valued at less than £600,000 the government will guarantee a proportion of the loan. Existing homeowners will also be able to use this scheme to re-mortgage.

The scheme will not be available to buy-to-let landlords, foreign buyers or those looking to buy a second home. The procedure to police this has been criticised as it simply involves the lender obtaining a declaration that the borrower has no interest in another property anywhere in the world.

For more information please contact Laura Pyatt in the Ansons property law team on 01543 267192 or lpyatt@ansonsllp.com.