Help to Buy: Equity Loan v Mortgage Guarantee

Willem-de-Blois

I attended the Help to Buy show in Bristol on Saturday where I took the opportunity to attend a 5-minute financial consultation with an independent mortgage advisor.


Owing to the lack of time and a long queue behind me, the advisor asked me what specific HTB scheme I was interested in. I mentioned the 20% equity loan.


The result of the discussions was that I'd be able to target £200k new build houses. However, if I was to buy a place that is convenient to my office, I'd have to buy a used property which would cause me to look into the mortgage guarantee.


What things would change with the mortgage guarantee instead of the equity loan? Would l likely still be able target £200k properties or should I look for lower priced used properties?

kingstreet

If you don't have a 20% equity loan, you are going to have to reduce your target price range.

You would be looking for a 95% mortgage, so you need to know what amount would be considered affordable and adding your 5% deposit to that.

Willem-de-Blois

kingstreet wrote: »

If you don't have a 20% equity loan, you are going to have to reduce your target price range.

You would be looking for a 95% mortgage, so you need to know what amount would be considered affordable and adding your 5% deposit to that.

Thanks for that. I suspected that I would have to reduce my maximum price - the question remains by how much?


The mortgage advisor said that my affordability limit would consist of the following elements:


Deposit - £50k
Equity loan - £40k
Mortgage £110k at 2.5%, fixed for 5 years.


I am now wondering if I can estimate my affordability on a used property which I release would be of a lower value.


What does the mortgage guarantee actually do with the bottom line?

kingstreet

The guarantee means nothing to you.

It merely provides lenders with a guarantee that the Government will underwrite the repossession pool so that lenders won't lose out if the fund is insolvent.

You have an affordable mortgage amount, based on your lender's affordability model. Add that to your deposit and you have your maximum purchase price. The same for any other mortgage/deposit situation.