Will all 75% plus mortgages be forced into the government's new scheme ?

property.advert

Come January next year, will all folks looking for LTV mortgages of more than 75% be forced into the new lending scheme ?

Now I know this is only for properties up to £600,000 but if the government makes lots of hoops to jump through to qualify for the assistance, what will happen to folk who would rather not use such a scheme ?

Thrugelmir

There's no obligation for lenders to offer the scheme. There's a very specific objective with this scheme. It's not an open ended commitment to underwriting 95% mortgages either. Those with the neccessary finance will be better off outside of the scheme. As the "loan" will need to be indemnified in some way. More than likely with a loading to the interest rates on offer.

wierddumpling

You don't have to use the scheme. As far as I'm aware in theory it allows people with low deposits gain access to better mortgage rates and to able to afford a better property than they could with a small deposit.

Will the mortgage rates change if more people could potentially buy, who knows.

brit1234

I'm sure if you had a real 25% deposit you would get a better rate than those who use help to buy.

Gentoo365

It's an interesting question.

From a banks point of view getting 20% of the loan guaranteed by the government will make the loan less risky.

From the borrowers point of view, the fact that interest is not charged on the 'government loan' part means that it should be cheaper.

It does seem to be that it makes sense for everyone to be in the scheme if they can.

Gentoo365

brit1234 wrote: »

I'm sure if you had a real 25% deposit you would get a better rate than those who use help to buy.

Well that depends. It may be better to use the government interest free 20% loan and put your real money to better use (or make large overpayments soon after taking the mortgage).

Only negative is that the 20% owned by the Govt. is an equity stake, so they share in any rise (but also, possibly, in any fall) in house prices.

So actually there is another possible benefit, it provides a hedge against house price falls. Your 'real' cash is safe.

(all the above is based on a cursory glance at the schemes, I will certainly look in more detail once I see some actual examples of mortgages available.)

Gentoo365

Another point.

Will a bank prefer someone with a low deposit (say 10%) to be in the scheme? Maybe they will. As then they know that it will be more affordable (20% is interest free), and the government guarantee is there.

So it is in fact possible that for loans 75% LTV+ the rates will be higher. As banks will be wary of NOT using the scheme.

Thrugelmir

Gentoo365 wrote: »

From a banks point of view getting 20% of the loan guaranteed by the government will make the loan less risky.

The Government will cover only potential losses on the loans by levying a charge. This most likely will be recovered by the lender charging a higher rate of interest on the product.

Gentoo365

Thrugelmir wrote: »

The Government will cover only potential losses on the loans by levying a charge. This most likely will be recovered by the lender charging a higher rate of interest on the product.

True, but is this more (or less) risky that the alternative, which is rely on the borrower for all the loan? Bearing in mind that for loans of 75% ltv the security may not be sufficient after legal costs / auction etc.

I think that the affordability thing may be the main thing though. Given that the 20% is interest free, and then is low interest on the 6th year. It is possible that the overall monthly interest cost to the customer will be less.

However that requires actual examples of rates.

kingstreet

Yet again, people are confusing the current HTB Equity Loan (newbuild only) and HTB Mortgage Guarantee (newbuild & existing) which starts in January.

With MG there is no interest-free loan. It is a upto 95% mortgage with a guarantee from the Government to encourage lenders to lend more at higher LTV and with relaxed capital requirements.

property.advert

There is no "interest free" part here, simply a government backed equivalent to the old mortgage guarantee premiums which banks loved to push.