New builds and Help to Buy Scheme

jdc23

I am not yet ready to purchase a property but have been having a little look around to try and understand how things work. I currently rent in a new-ish estate that was built around 8 years ago, they are still building and the estate is constantly expanding. There are also other new build estates appearing within a couple of miles of my house.

I have noticed that these new builds are often advertising the government Help to Buy Equity Loan scheme. They claim that with this scheme you can buy a new property with a 5% deposit. Out of interest I looked into this a bit. I understand that the scheme incorporates a government equity loan of up to 20% of the property value and therefore a buyer would only need secure a mortgage of 75% of the property value, with a 5% deposit.

My question is, are these claims made by these new build developers at all realistic? Is it actually possible to purchase any new build property using only a 5% deposit? I ask this as my understanding is that people often speak of new build properties often being sold at inflated or premium prices. I have also read of people saying that because of these higher asking prices lenders are very unlikely to consider anything in excess of a 85% LTV ratio when lending against a new build property.

How therefore can developers claim so openly that a purchase with only a 5% deposit would actually be possible? Has anyone actually managed to purchase a new build property using just a 5% deposit?

martinsurrey

jdc23 wrote: »

How therefore can developers claim so openly that a purchase with only a 5% deposit would actually be possible? Has anyone actually managed to purchase a new build property using just a 5% deposit?

1000's upon 1000's have.

you are getting it all a bit backwards.

you ARE buying with a 25% deposit, its just 20% of it comes from the government and only 5% comes from you.

In the banks eyes however it doesn't matter where the deposit comes from, they only lend 75% of the price of the house, well under their often 85% limit on new builds.

jdc23

Thanks for such a quick reply. I see...so the government's 20% effectively counts as part of the deposit? I hadn't found anywhere that mentioned this. Does that mean then, that should the buyer default, the lender would have claim upon the government's 20%? Surely this must be the case as they are therefore using this as security.

I was under the impression that the Equity Loan Scheme was effectively a way of lowering the house price so that a buyer had a means to securing a mortgage at a lower multiple of their salary. The way you have described it is effectively a deposit top-up scheme. Is my understanding correct?

pinkfluffybabe

jdc23 wrote: »

Thanks for such a quick reply. I see...so the government's 20% effectively counts as part of the deposit? I hadn't found anywhere that mentioned this. Does that mean then, that should the buyer default, the lender would have claim upon the government's 20%? Surely this must be the case as they are therefore using this as security.

I was under the impression that the Equity Loan Scheme was effectively a way of lowering the house price so that a buyer had a means to securing a mortgage at a lower multiple of their salary. The way you have described it is effectively a deposit top-up scheme. Is my understanding correct?

You will sign a ranking agreement as part of your legal paperwork that notes that both the Government and the mortgage lender have a 'stake' in the property so no, the lender has no claim upon the government finance if you default.

It is more of a deposit top up scheme. The only thing I would say is that although we had a 5% deposit, we spent the same again on extras/costs/furniture so you do need to make sure you have savings behind you above and beyond the deposit.

Windofchange

Oh, look what google found...

https://www.helptobuy.gov.uk

Now, because the housing bubble has got so completely out of control, those lovely government folks will actually now lend you 40% if you want to buy a place in London. But of course it's out of the generosity of their warm fuzzy hearts that they want to help people like you. Just sign on the line please sir before anyone loses their bonus and the champagne gets warm.

I kind of actually admire it in a sick way. They have screwed over an entire generation and still people are looking at help to buy as something to be grateful for.

kingstreet

pinkfluffybabe wrote: »

You will sign a ranking agreement as part of your legal paperwork that notes that both the Government and the mortgage lender have a 'stake' in the property so no, the lender has no claim upon the government finance if you default

The lender has a first charge, the HCA a second.

In the event of repossession, the lender could recover its entire debt, leaving the HCA with nothing.