The Government is bringing forward the second part of the controversial ‘Help to Buy Scheme’ by three months. This phase is not restricted to first time buyers or new build properties.
In short, a buyer with a 5% deposit will now find it easier to buy a property valued £600,000 or less. The £12 billion scheme will underwrite £130 billion worth of mortgages for the next three years. Essentially the Government will guarantee 15% of the home loan, which banks can consider to be some sort of limited insurance policy.
It seems that 1 million people are considering taking out mortgages under the scheme and it is attracting young and first time buyers in particular.
However, the banks are not reacting with anything like such enthusiasm, and at the time of writing only the state backed RBS and Lloyds have endorsed the scheme, with HSBC still considering their position.
So why the reluctance? The banks are rightly concerned about the risks of the high loan-to-value (LTV) ratios because of the low deposits involved and what happens when interest rates rise again (which they surely will at some stage).
This scheme excludes buy-to-let investors, those buying second homes, and foreign buyers without a credit rating in the UK.
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Mortgage approvals are now at their highest levels since February 2008, though they are still lower than the peak of 2007.
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Property prices in London and the South East are at their highest levels for six years and the Centre for Economics and Business Research concludes that property in London will rise by 25% over the coming five years.
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The highest number of UK cash buyers have entered the property market.
It seems that the baby boomers who are either downsizing or spending inheritances (having sold their deceased parents’ family home, for example) are an important force in today’s market. Many are downsizing and releasing funds to assist their children with property purchases or are fuelling the already buoyant buy-to-let market to bolster their poor performing pensions and cash savings.
We have blogged before about our concerns of the effect of high property values on inheritance tax bills, and one way to legally reduce a large IHT bill is to make cash gifts in your lifetime.
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The Guardian (30/09/2013) reported that research by Nationwide found that 10% of parents base their house purchase on the proximity to the best state schools, and would be prepared to pay an additional 10% over asking prices in order to secure the property.
If you are thinking of buying or selling a residential, buy-to-let, or commercial property contact our excellent property solicitors either by completing our online enquiry form or by calling us on 0207 387 2032.