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Help to Buy: Buy a Home with just 5% deposit

Help to Buy - Buy a Home with just per cent depositHelp to Buy is a government backed initiative to help people buy their own homes. With this scheme, homebuyers no longer need to make huge deposits as down payments. With just 5% deposit, anyone can now buy a home.

David Cameron, UK Prime Minister, has brought forward the launch of the new government backed mortgage scheme by three months, to October 2013. The £ 12 billion scheme will underwrite thousands of mortgages over the next three years, allowing borrowers with just 5% deposit to get on the property ladder. The first part of the scheme was launched in April 2013, and offers loans of up to 20% for home buyers purchasing new build property up to £ 600,000 in value. The loan from the government would be interest-free for the first five years, and from the sixth year on, the buyer must pay an annual fee of 1.75%. The fee will increase annually to reflect the retail price inflation plus another 1%.

The mortgage guarantee launched in October is the second part of the scheme. The scheme will also allow buyers to get a home of up to £ 600,000 in value, with a down payment of only 5% of the price of the property. The mortgage guarantee applies to all property purchases, not just newbuild properties. The government will underwrite 15% of the value of the mortgage, thus encouraging lenders to provide loans to buyers with just a 5% deposit. Beginning 7 October, buyers can apply for loans under the scheme, but they will not be paid out until 1 January 2014.

The Help to Buy scheme has its fair share of supporters and detractors. But for a young person considering buying a new home to start a family, Help to Buy comes as a boon. Many people are unable to buy a home of their own primarily because of the huge deposit amounts that they have to save up in order for the mortgage provider to offer them a loan. In spite of paying high rentals every month, especially in areas like London, many young professionals are unable to buy a home precisely because of this obstacle. Help to Buy removes this impediment.

If you’re serious about buying your own home, but have been putting your plans on hold because of the high deposit requirement, Help to Buy is a great opportunity to make your dream come true.

Photo courtesy: Christopher Sessums

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