Locked out of Help to Buy? A fixed for life mortgage could be the answer

Help to Buy has backed more than a quarter of a million house purchases since it launched in 2013.1 The Government-backed equity scheme, which provides a 20% top-up loan (or 40% in London), has helped many buyers to step into a new build property and often with just a 5% deposit.

Yet, Help to Buy is soon set to change and those intending to use the scheme might now find that they want to look to an alternative.

What’s happening to Help to Buy?

From April 1st, Help to Buy will be restricted to first-time buyers only. To qualify for the scheme, you must be buying your first home, so for the thousands of second steppers who currently account for 18% Help to Buy users, this means they can no longer benefit from Help to Buy.

These are not the only changes to Help to Buy though. Even if you still qualify as a first-time buyer, new regional price caps could also put your dream property beyond reach. In many areas of the country, these caps are lower than the average house price, so if you’re looking to buy in a city like York or Cambridge, you might find it difficult to find a place that qualifies for Help to Buy.

In just two years’ time the scheme itself will also come to an end. So, if you’re looking to step into a property but don’t have a large enough deposit, what are your choices?

What’s the alternative?

Long-term fixed-rate mortgages could soon offer an alternative route for borrowers to purchase the home of their dreams.

At Perenna, we’re planning to launch a 30-year fixed-rate mortgage that allows buyers to step onto and up the housing ladder with as little as a 5% deposit. With a rate we call ‘flexible fixed for life’, there are no shock increases in repayments. By contrast, the Government’s Help to Buy scheme is an equity loan that you must start paying back after five years and that means your monthly outgoings could rise significantly. Also, do you really want to share the equity you have in your home with your lender, Perenna will not take a share of your equity.

As well as avoiding those higher repayments, customers taking out long term loans will be able to buy without being subject to the strictest mortgage affordability tests on variable rate or short-term fixed-rate mortgages that have blocked many young people from buying a home. For two- or three-year fixed-rate loans, borrowers are required to show they can afford to pay back their mortgage if rates were much higher (usually at lender’s standard variable rate plus 3%) but a long-term fix gives homeowners certainty over their repayments for years to come. This means such stringent stress tests are not necessary.

A mortgage for you

With a Perenna long-term fixed-rate mortgage you won’t suffer from the same restrictions in place with schemes like Help to Buy. While Help to Buy has proved a suitable route for thousands of buyers onto the ladder, it’s focused solely on new build properties. This restricts the choice available to buyers with smaller deposits, but with long-term fixed-rates offered by Perenna, borrowers can use their mortgage to fund the purchase of older properties too, just as long as it’s your primary residence. This could be a vital lifeline if you’re looking to buy in smaller towns or villages where there are fewer new-build properties to choose from. If you or your other half has or currently own another property, you can still buy that dream home – our mortgages won’t be restricted to first-time buyers either.

Alongside this, some users of Help to Buy are also already finding it challenging to find lenders that are willing to help them remortgage. Our long-term fixed-rates will have built in flexibility too. Perenna’s products will be fully portable, so you can take them with you when you move, and with early repayment charges for just the first five years, it’s fully possible to switch if a better rate becomes available.

Whether you have fallen outside the Help to Buy scheme rules or are just looking for another option, long-term mortgages will soon be a viable alternative for all borrowers. If that’s a mortgage that sounds like it could meet your housing needs, sign up to our waitlist to be the first to hear more.