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"Confusion Reigns over Government's Help To Buy Scheme"

Help to buy scheme

Analysts have expressed concern and confusion about the new Help to Buy scheme

The help to buy scheme was launched by the government in a bid to boost the floundering property market. The primary area of confusion concerns UK areas of eligibility,
and the terms of eligibility, with slightly different schemes and interpretations currently in place around the country.
 
The first phase of the help to buy scheme went live in April, and it concerned shared equity. This scheme meant that, in England, the government would offer homebuyers up to
20pc equity loans to buy a new property up to a value of ?600,000.
 
The second phase went live earlier this month, and concerned mortgage guarantees. This element applies to the whole of the UK and the government will be underwriting as much
as 15pc of the house price, with the buyer obliged to have at least a 5pc deposit. The remaining cost will be covered by a bank participating in the Help to Buy scheme.
The confusion arose because the governments in Northern Ireland and Scotland offer their own distinct shared-equity schemes. However, the UK mortgage guarantee scheme also
applies to both areas, and the government has backed it with £12 billion.
 
In Scotland there is the Help to Buy Scotland scheme, which is also a shared-equity arrangement, helping first-time buyers as well as existing property owners to buy new-build homes
from approved developers. It also requires the buyer to put up a deposit of at least 5pc, with the Scottish government providing at least 20pc of equity share of the property's value.

The government's share isn't obligatory ? the buyer can buy it out whenever they like. However, the homeowner doesn't need to pay the government anything unless they do want to buy out
this share. Scotland's government has invested £220 million into the help to buy scheme, designed to last for three years. It has a lower value cap and applies to houses worth up to £400,000 only.

In Northern Ireland a different system operates that is known as the co-ownership scheme. It has been in existence since 1978. Under the scheme, potential property owners take as big a share in
their first home as they can, which is known as a starter share, and will be 50-90pc of the property's value. They can then increase their share over time. The scheme is applicable for both new and
old houses priced at £175,000 or less.
 

The Northern Irish and Scottish governments don't charge interest on these equity shares. In England a 1.75pc charge is applied after five years, growing with inflation annually afterwards.

Written by Marc Dewdney of Circle Square - Finance Jobs London
 

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