Budget 2013: new mortgage scheme to help homebuyers with small deposits

Budget 2013: new mortgage scheme to help homebuyers with small deposits

Chancellor George Osborne announces a new scheme to help new and existing homeowners buy properties worth up to £600,000.

Economic Analysis

20 March 2013

RBS will be working with the UK Government to help make a new house purchase scheme work for thousands of potential homebuyers who are unable to afford the deposits necessary to buy a property.

Chancellor George Osborne announced a new scheme, Help To Buy, in the 2013 Budget which will help the buyers of both newly built and older properties secure mortgages with deposits worth as little as 5% of the property’s value.

The scheme will work in two ways. The first part of the scheme is an equity loan, where the Government will lend up to 20% of the value of a new build property, while the buyer will be expected to put forward a 5% deposit.

The equity loans, which will become available on April 1 through participating housebuilders and HomeBuy agents, are interest free for the first five years, with a 1.75% fee payable from year six, rising annually by RPI inflation plus 1%.

Unlike previous, similar schemes, the Help To Buy Equity loan will be offered to existing homeowners on any size of income who are struggling to move up the housing ladder to a more expensive property.

The loans can be repaid at any time within 25 years, or on sale of the property.

The second part of the scheme is a mortgage guarantee on both old and new build homes. The Government will make £12bn of guarantees available to the UK’s leading lenders, including RBS and NatWest, to enable borrowers to buy with small deposits of between 5% and 20%.

This option will become available from January  2014 for three years, and further details are expected later this year.

Both options will be offered on properties costing up to £600,000, and the buyers must live in the homes bought through the Help To Buy scheme. It is not available for buy to let purchases or for purchases through incorporated companies.

The Chancellor said: “We will help families who want a mortgage but who cannot afford deposits. We’ve worked with the biggest mortgage lenders to get this right.”

Moray McDonald, Head of Lending for RBS and NatWest, said: “We welcome the additional support for home buyers announced in today's Budget. RBS has been growing its mortgage lending and we will look to use the support announced today to lend more, helping stimulate the housing market and the wider economy.”

RBS used the Funding for Lending scheme to support first time buyers, with around 4,000 homebuyers benefitting from cheaper rates on mortgages totalling more than £500m in the second half of 2012.

The Chancellor also announced further support for the Funding for Lending scheme, which was implemented in August 2012.

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