Are help To Buy Schemes Really Helping ?

Disclaimer: THIS BLOG IS NOT ABOUT THE GOVERNMENTS HELP TO BUY SCHEMES. IT IS ABOUT THE LENDING CRITERIA THAT THEY CONVENIENTLY DON’T EXPLAIN

However, for those that are interested, this is a helpful link that explains help to buy schemes. http://www.helptobuy.org.uk

The current help to buy schemes put in place by the government are probably the best opportunity us  (18-25 year olds) will have to get on to the property ladder.

The reintroduction of 95% mortgages is good news for the majority of the population as a 5% deposit is relatively easy to raise. e.g a £200,000 house would require a deposit of only £10,000. However, the difficult part is the outstanding £190,000 left to pay.

LENDING CRITERIA

The government have window dressed their Help to Buy schemes to the extent  that people do not realise that the criteria for lending is as strict as it has ever been.

Bank & building Societies generally lend anything up to 4.5 times your salary.

The average UK salary is approximately £26,000.

£26,000 x 4.5 = £117,000

Therefore, the best you could wish for is a mortgage of £117,000 (bare in mind this is the best case scenario.) 

A quick search on Rightmove will show you that all you can get for that type of money is a one bed on top of a chicken and chip shop.

What about the new government initiatives that are supposed to help more first time buyers ?! Won’t that make things easier ??

Well ……

EXAMPLE 1 with “Help To Buy Equity Loans”on a £200,000 property

Salary: £26,000 

5% Deposit: £10,000

20% Government Equity Loan: £40,000

Mortgage required: £167,000

Realistic Mortgage offer: £117,000

EXAMPLE 2 with “Help To Buy : Mortgage Guarantee” on a £200,000 property

Salary: £26,000

5% Deposit: £10,000

Mortgage required: £190,000

Realistic Mortgage offer: £117,000

Looking at the example above : In the case of Help To Buy Equity Loans, a further £50,000 will be required to acquire a property. Likewise, in case of Help To Buy: Mortgage Guarantee, a further £73,000 will still be needed to acquire a property. 

Hopefully you can see from this that the main factor when purchasing a property is your salary. If you’re not earning above the average salary then you can more or less wave goodbye to taking a step to owning your own property,

However, if you’re struggling to meet lenders salary criteria you do have three options;

1. Considering acquiring your mortgage with a friend, relative or spouse (Two salaries put together are better than one)

2. Go to the bank of Mum & Dad and ask for a substantial deposit

3. Lower your expectations and live on top of a chicken and chip shop

Key Terms

Equity - A stock or any other security representing an ownership interest.

Mortgage - A legal agreement by which a bank, building society, etc. lends money at interest in exchange for taking title of the debtor's property

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