by Mark Johnston
Help to Buy Scheme Could be Exploited.
The new help to buy scheme is designed to help those who are unable to raise the large deposits that are now required to buy a property.
George Osborne, Chancellor of the Exchequer, says “the intention of the scheme is absolutely clear, which is that it is for people who want to get their first home, or for those who have a home and want to move to a bigger home”.
However, it appears that the scheme could potentially be used by some wealthy home owners to fund a second property.
Mark Prisk, the housing minister, said “this is about funding homes not about second homes”.
Budget documents state that the help to buy scheme will only be available to buy a home to live in. Although it is not clear whether it will stop people from renting out their current home and buying a new one.
It seems that the small print within the scheme does not rule out wealthy borrowers from also taking up the offer
Ed Balls, the shadow Chancellor, has stated “the government is basically saying that if you have got a spare room in a social home you will be paying bedroom tax. But if you want a spare home and you can afford it, we will help you buy it”.
Although, David Hollingworth of mortgage brokers London and Country, suggested that “it was unlikely there would be much demand from buyers looking to use the scheme to fund a second home purchase”.
There is also of course the fact that lenders may be unlikely to lend to second home buyers will a small deposit, even with a government guarantee as to afford a second property buyers would need to show they can pay both the mortgage on it and on any existing mortgage.
Ed Mead, director at Douglas and Gordon estate agents, points out that “lenders are unlikely to check on whether people really are struggling to scrape together the cash themselves before giving them the interest free loan”.
It also appears that a large number of existing home owners will be able to use the scheme to refinance their existing home loans. The small print in this scheme makes it clear that borrowers can not use the scheme to remortgage with their existing lender but they can remortgage with a new lending institution.
The government does not however expect a high flow of existing home owners to remortgage using this scheme. Although some of the funding could potentially be swallowed up by ‘canny’ households.
Jan Crosby, head of house building at KPMG , said “allowing remortgaging was not in the spirit of the policy. It is lunacy to allow remortgaging”.
The government is still however ironing out all the details of the mortgage guarantee element with the financial industry before it finally launches next January.
Nevertheless, Mick McAteer, from the Financial Inclusion Centre, says “this scheme is unlikely to help younger borrowers on lower or even middle incomes”.
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