The Building Societies Association (BSA) has found that there is confusion over the government’s Help to Buy: mortgage guarantee scheme, with 43% of active first time buyers and other home movers confused about the benefit the scheme will give them.

In addition, 31% of consumers who are looking to buy or move admit they do not know whether there is a difference between a 95% mortgage offered by a lender which has signed up to the scheme and a 95% mortgage from a lender which hasn’t.

Results from an independent consumer survey commissioned by the BSA show that 18% of first time buyers and 17% of home movers believe that they can borrow more through this scheme than with a ‘standard’ 95 per cent loan.

12% of both first time buyers and home movers believe that their monthly repayments will be lower as a result of taking a Help to Buy: mortgage guarantee loan.
Meanwhile one in ten first time buyers (just 5% of home movers) believe that the scheme will protect them if they cannot keep up their monthly payments. 12% of first time buyers (just 6% of home movers) say that Help to Buy: mortgage guarantee will protect them if their house price falls.

Also, 24% of first time buyers and 22% of home movers say that they are more likely to be approved for a Help to Buy mortgage.

And yet not one of these suppositions is true. The Help to Buy: Mortgage Guarantee Scheme has been designed to encourage more lenders to lend to borrowers with small deposits, increasing the availability of this type of loan. The mortgage that an individual consumer receives and the approval process they go through, are subject to the same lending rules whether a mortgage is inside the Help to Buy scheme or not. When considering the affordability of the Help to buy: mortgage guarantee loan, until the new FCA rules related to the Mortgage Market Review come into force in April 2014 borrowers may well be subject to stricter requirements then they would be otherwise.

The BSA said the introduction of and the publicity surrounding the two Help to Buy schemes has had a positive effect on consumer confidence and is likely to increase the overall volume of higher loan to value ratio lending, as some banks get back into this market. Some lenders, particularly many building societies, have consistently offered loans requiring deposits of 5% or 10% and continue to do so outside the Help to Buy Scheme.

Paul Broadhead, the BSA’s head of mortgage policy, said: “It is unsurprising that some consumers are finding the Help to Buy: Mortgage Guarantee Scheme difficult to get their heads round. The situation has been complicated by the launch of two very different schemes both called Help to Buy.

“It is essential that providers offering loans under the scheme leave applicants in no doubt about the terms of their mortgage loan. I am particularly concerned that a reasonable minority of active first time buyers believe that they can borrow more than normal and that they are in some way protected – neither assumption is true.

“In fact a 95% mortgage through Help to Buy: mortgage guarantee is exactly the same as a standard 95% mortgage. It is vital that these myths are dispelled at application to prevent the possibility of consumers misunderstanding their mortgage loan and later feeling misled.”