Help To Buy Mortgage Indemnity Early

Help To Buy Mortgage Indemnity Scheme.

The Government second stage for its help to buy mortgage scheme has been brought forwards by 3 months.

The first help to buy scheme is available first time buyers.  This is a loan deposit scheme where first time buyers that do not have a large deposit, are able to borrow up to 20% of the purchase price of a brand new build property, with them only needing a 5% deposit.  In short, 25% of the value of the property is used as a deposit of which 5% is invested by the first time buyer and the balance of 20% is in the form of a loan from the Help to Buy scheme.  The scheme is basically interest free for the first 5 years and then a yearly charge is levied.  The scheme has prompted concerns that it will create another housing price bubble, particularly in the South East.

Second Stage - Help to Buy for existing homeowners

The second part of the Help to Buy Scheme is aimed at existing homeowners who are perhaps trapped in properties with low equity but wish to move up the property ladder. 

How it works:

• It is a mortgage indemnity scheme.
• This means that you can still arrange a mortgage up 95% with your mortgage lender.
• High loan to value mortgages are high risk to the lender just in case they need to repossess the property, so lenders are not keen on lending to people without a large deposit.
• Mortgage indemnity means that insurance is taken out against the risk of mortgage default.
• Back in the 1980's and 1990's mortgage indemnity schemes were very common for high loan % mortgages.
• Most mortgage lenders arranged insurance with large insurers but the premiums were charged to the borrower. 
• When property markets fells in the 1990's many people had their homes repossessed and insurers paid out millions of pounds to mortgage lenders to cover losses.
• The new mortgage indemnity scheme is being underwritten by the Government.

In short, the Government is insuring mortgage lenders against losses from higher low to value mortgage losses to try and stimulate the property market.

The Help to Buy Mortgage Mortgage Indemnity scheme is available to all borrowers on all types of property, not just first time buyers and new build homes.

Comment

There will be a property bubble.

Eventually the property market will boom and then crash.  Many people may lose their homes and the Government could face losses on these schemes.

Large loans and toxic debt are what caused the problems of the credit crunch in 2007/08.  We suggest this is not a god move and the property market should be allowed to develop naturally.