In the distant past Government supported home buying by offering tax incentives. It has been some years now since UK taxpayers could obtain tax relief for mortgage interest payments. The MIRAS arrangement, where tax relief at the basic rate was deducted from mortgage interest payments by the lender, was the last and fading effort at stimulating home buying in this way.
Instead George Osborne and his team have elected to try out two alternative systems: an equity loan scheme and a mortgage guarantee.
Help to buy: equity loan
This scheme will run for three years from 1 April 2013 and is proposed to provide £3.5bn of additional investment.
- The scheme will apply to new builds only
- All home buyers can apply – this scheme is not restricted to first-time buyers.
- Buyers will need a minimum deposit of 5%
- Government will lend up to 20% of the value of the property as an equity loan – this can be repaid at any time or when the property is sold. The loan is interest free for the first five years. In year six borrowers will have to pay a 1.75% annual fee which will increase annually by 1% of the annual amount above inflation.
- The equity loan arrangement will only apply to home purchases of £600,000 or less.
Lenders using this scheme will share ownership of their property with Government, if the value of your property increases so will the equity loan.
Help to buy: mortgage guarantee
This scheme will run for three years from 1 January 2014. Buyers will need to secure a mortgage from a lender who should be encouraged to offer better access to low deposit mortgages by the Government guarantee.
- Guarantee will apply to new builds and existing homes
- A minimum 5% deposit will apply
- Available to existing homeowners and first-time buyers
- A maximum home purchase of £600,000 applies
Both schemes are intended to stimulate the housing market and in particular new building.