'We didn't have a big deposit so we didn't think we'd have many options': Can Help to Buy unlock the dream of a first home?

By Neil Simpson

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First-time homebuyers with small deposits are being promised a new way on to the housing ladder from tomorrow, when the next phase of the Government’s Help to Buy scheme goes live three months ahead of schedule.

Fast-forwarding the launch took the property market by surprise – David Cameron announced it in the run-up to the Conservative Party conference – and most lenders will wait for the dust to settle before making any mortgage offers. Here’s the story so far.

Married bliss: Lee and Nikita McAllen were desperate for a place of their own. Read their story below.

Married bliss: Lee and Nikita McAllen were desperate for a place of their own. Read their story below.

When did Help to Buy begin?

The first phase started in April. It applies to those buying new homes from developers in England. Similar schemes are on offer or on the cards for Scotland and Wales.

If you can’t raise a deposit of more than 5 per cent then Help to Buy will top up your money with an interest-free Government loan of 20 per cent of the value of a new property worth up to £600,000.

You then look for a mortgage for the remaining 75 per cent of the property price, which should be much cheaper than a 95 per cent loan. The scheme applies to first-time buyers and owners wanting to trade up. You can’t use it for buy-to-let and you need a clean credit record. Interest rates start at about 3.5 per cent for two-year fixes.

 

What are the downsides?

Critics warn about ‘payment shock’ when the Government’s five-year interest-free loans expire and owners have to clear the loan or pay interest on it (starting at 1.75 per cent a year and rising with inflation). The loan from the Government has to be repaid when you sell so you don’t get the full benefit of rising house prices.

If you get £18,000 from the Government as a 20 per cent share on a £90,000 home you will have to return £22,000 if you sell up for £110,000. But if you sell at a loss you’ll just repay  20 per cent of the sale price to the Government, even if this is less than the amount you took at the start.

 

What is Phase Two?

This extends the aid to people buying older homes. You can again buy with just a five per cent deposit. But instead of getting a 20 per cent interest-free loan from the State you go to a lender that has bought a guarantee from the Government, which should protect it against a default. You will be offered a loan for 95 per cent of the property’s value, but at interest rates that usually go with bigger deposits.

Which lenders are on board?

The Government-backed banks, Lloyds and Royal Bank of Scotland, have signed up, which means loans should be available through Halifax, NatWest and other subsidiaries. Other lenders were preparing for the original January 2014 launch date and may not offer deals before then. Even Lloyds and RBS admit that tomorrow’s launch applies only to applications. No money will be paid out until January at the earliest.

What will interest rates be?

The rates may be only 5 per cent on a five-year fix – not as low as some had hoped. As more lenders join, rates may edge down, so buyers could do well to wait before signing up.

Are there any alternatives?

If you’re buying a new property then the NewBuy scheme can help – see box. Several lenders also offer no-strings 95 per cent mortgages, even though interest rates might be high.

Regional building societies are worth trying. Big players such as Lloyds and  Barclays also have schemes allowing families to pool their buying power and release 95 per cent loans for first-time buyers.

Any other worries?

The schemes could cause a housing bubble and it is dangerous to let low-deposit buyers into the market as they will fall into negative equity if prices drop. Put money aside in case interest rates rise.

NEWLYWEDS SAY 'WE DO' TO HELP TO BUY SCHEME

Married bliss: Lee and Nikita McAllen were desperate for a place of their own. Read their story below.

Lee and Nikita McAllen married recently and got on the housing ladder this summer after struggling to put together more than a 5 per cent deposit.

‘We’d been renting for years and were fed up helping to pay off someone else’s mortgage rather than our own,’ says electrician Lee, 37. The couple had read about Help to Buy and other schemes and called in at a development near their rented house in Wainscott, Kent.

‘We didn’t have a big deposit so we didn’t think we’d have many options,’ says budget controller Nikita, 27.

But developer Crest Nicholson told them about NewBuy, the overlooked rival to Help to Buy that was launched in spring 2012.

With NewBuy you put down a 5 per cent deposit and get a low- rate 95 per cent mortgage from either Aldermore, Halifax, Nationwide Building Society, NatWest, Santander or Woolwich.

The McAllens chose Nationwide where fee-free NewBuy rates start at just over 4 per cent.

As users don’t have an equity loan from the Government to repay when they sell, the McAllens should be able to enjoy the full benefit of any price rise for their three-bedroom semi.

The comments below have not been moderated.

YOU CAN EITHER AFFORD A HOUSE OR YOU CANNOT...HELP TO GET IN A DEBT BEYOND YOUR MEANS IS FOOLSIH AND FOOL HARDY...IT CAN OFTEN END IN STRESS AND TEARS AND FINANCIAL HIGH COSTS FOR MANY YEARS IN THE FUTURE....Help to get you started is not going to help you pay off the extra high debt in future years... which is the killer to so many when incomes fall in many ways... never go above 60% of your income to pay for a mortgage or rental...if you want money left to enjoy life as well... working just to pay rent or a mortgage is pointless....and debt creation ... beware ..a fool and their money are soon parted.... and big financial regrets cannot be reversed..... in a few years...

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If your dream is a millstone round your neck for the next forty years, then yes it can.

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The way you get your dream home (which you will NEVER be able to afford in today's market where prices are three times as high in real terms as they were a generation ago), is to hold out on the government until they re-regulate the mortgage market in terms of salary multiples, deposit sizes and the products available. I can hardly think of another market where "competition" between suppliers leads to higher prices. It's a dysfunctional disaster. Once the market is re-regulated, prices will experience a quick sharp shock downwards as the market realises that no one's ever going to get a five times salary loan again.

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You're kidding right m22? An average 4 bed up here (150 miles from London) is currently eight times the average salary - and the prices are the lowest they've been since 2008 and are still going down. The government can't rig the market for ever, it will correct.

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4 bed is not average and certainly not a starter home, earlier this year here in Ipswich, 70 miles from London, you could buy a 3 bed semi for 110k. Get a job if your so deserving of a 4 bed house, it's called the housing ladder, always has been and no I'm not joking, people like you make me sick. Keep waiting for the crash, it will come as any half sane person knows it's a cycle, unfortunately for you we are currently just after the bottom of it.

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People of my generation suffered the ravages of high inflation (over 20% pa), high mortgage interest rates (over 15% pa) and basic rare income tax of 33% but were afforded some help by tax relief on all or part of the interest, effectively reducing net interest by a third. With this help, it was possible to get a toehold on the property ladder. For this generation the problems are different but the imperatives are similar. A house is a home, not an investment, buy within your means utilising any help from anywhere. AVOID new houses - they carry a hefty premium which is list on resale.

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What happened to the good old days we people bought what they could afford and if they didn't have the money, they worked damn hard to save for it. This credit card culture has got us all thinking having a huge mortgage, a huge car loan, shopping being done all on credit is sustainable?

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What about on the downside, if you haven't moved, you then have to start paying monthly interest for the government share, what if you cannot afford it? No one I looking at affordability correctly, could be some very hard up homeowners, especially as it will come at a time for most, when children will probably have been added to the equation. What we need are good solid lending policies, including a reduction of the governments capital liquidity scheme for high loan to value mortgages.

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I'm not going to bore you with the detail but quite simply the Government is gambling here. If this goes wrong then our ability to borrow at a cheap rate from the markets will significantly reduce. Cameron and Osbourne constantly bombarded us with the message that for too long the people in this country had lived on cheap debt, and what is this doing?

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my best friend's step-aunt makes $87 hourly on the computer. She has been out of work for nine months but last month her paycheck was $12968 just working on the computer for a few hours. Continued>>>>>>>>>> ­Works23.CoM

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These idiotic comments need banning - other readers have checked it out and it seems to be a scam - a scam fully supported by the DM.

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