Budget 2013.. What it means for those saving deposits

megaginge

Hi Folks,

Long time viewer never needed to ask anything not already asked to death before!

So, with the just announced budget - for the first time .gov will back new buyers to buy a new OR old home, by guaranteeing the mortgate to the banks.

This means deposits should be far lower.

I'm hoping for a 95% LTV?

Does anyone have initial thoughts on what this means?
What the interest rates are likely to be
Whether 95% LTV is a good or bad move?
What the best strategy might be to use this to "step on" to the ladder, with a view to upsize in 5 years.

Background on where I am at.. I am looking to spend £250k at most on a not new (not interested in newbuy, even with the revisions - as I feel that new property prices are massively inflated and there is a high chance of negative equity) property, but only have so far 5% of the deposit.
Me and my partner are now saving approximately 1700 a month as we both live with our parents to maximise what we can save. Due to total combined income of approx 70k before tax, I want to buy a mortgage with a short repayment term and pay quite aggressively to significantly increase equity over 5 years - in order to have an 80% LTV on second property in 5 years.
I don't plan for the first place to be any more than a step.

If we save for a 20% deposit, it'd 50k. That's going to take us another 2 years to achieve. So this could be a real real shining light for us. But is it really? I am sceptical.

In short - I can't help but feel this policy is pretty much absolutely perfect for my circumstances. But I am no expert, and could well be missing things written between the lines.

What is the concensus?

Thanks guys!
Dave

megaginge

Just seen that help to buy is due to start Jan 2014 This would work. 7 months to wait rather than 2 years.

Needsomesunshine

sounds like you are better off doing what you are doing David. I bought through a equity loan scheme 8 years ago ( they are nothing new) & now stuck with a property with no equity. Dont forget your deposit belongs to the govt not you. We have restrictions on what we can & cant do, are not allowed to borrow more apart from home improvements. The govt changed the rules on our scheme so it is now not transferable.
I am hoping to get another mortgage with a 90% loan to value with a deposit from family to buy a house that needs general improvement. I will then remortgage & pay back the deposit at a percentage. I wish I had done this in the first place rather then rely on the government as they change the rules all the time.
My advice is to wait for the small print.

Wallhart

Ok I'm a little confused how these schemes work.

Equity Loan 20% with a 5% deposit.
For example if a house is £100k. Do I get a mortgage with a 25% deposit put down
or
Do I get a mortgage with tha bank for £80k and have to pay a 5% deposit to the bank.
I don't get how this works.

The guarentee scheme basically means there will be more 5% deposit mortgages but the bank will likely not pass the risk free element onto the first time buyer in the interest rate.

kingstreet

Firstbuy means you get a mortgage, a second charge secured on the property and pay a personal deposit.

For example, on a £160,000 purchase with 10% deposit, the mortgage would be £112,000, the second charge £32,000 and the personal deposit £16,000.

The second charge is repaid from the eventual sale proceeds when you sell in proportion to the percentage initially borrowed. So, if you get 20% to buy it, you pay back 20% when you sell, whether higher or lower.

The second charge is interest-free for five years, then it's 1.75%, increasing by RPI + 1% a year thereafter.

Wallhart

OK so in theory you are still borrowing 160 - 16k = £144k but £32k of that is at a lower borrowing level.

They are saying it is open for people with 5% mortgage though and there are no 5% mortgages offered by banks

It wouldhelp if the schemes were to not only help people get a deposit together but to reduce the banks margin (i.e the interest rate) charged to first time buyers on the whole loan. I don't mean to offer the same rate as people with more equity but the difference is staggering. These schemes end up as an opportunity for the bank to make money on guarenteed lending.

EvilJaz

Another thing you probably need to consider is property prices.

Will these schemes inflate house prices even more?

megaginge

Chaps it seems to have gone off on a firstbuy related tangeant.

Whilst I'm happy for people to use my topic to find out about their own circumstances: What does the deposit guarantee mean for me?

Dave

EvilJaz

Hi Megaginge,

My comment was for you :P. With regards to your comment:

If we save for a 20% deposit, it'd 50k. That's going to take us another 2 years to achieve. So this could be a real real shining light for us. But is it really? I am sceptical.

If you do wait 2 years, chances are property prices will be higher. So there maybe a need for you to have more than 50k deposit to get 20% LTV.

HAMISH_MCTAVISH

megaginge wrote: »

own circumstances: What does the deposit guarantee mean for me?

Very good news indeed.

It means around 500,000 to 750,000 high LTV mortgages will be available from January 2014 spread over 3 years.

Versus just 10 to 20 thousand last year.

Wallhart

At what interst rate though.