First announced in March 2013, the Government’s Help To Buy scheme is designed to help first time buyers, and anyone struggling to purchase a home, to achieve the dream of property ownership. By March 2016, the scheme had helped over 150,000 people to get on the property ladder. If you want to be one of the many people who will benefit from the scheme in the coming years, here’s a rundown of how Help to Buy works and how you can get involved.
The equity loan
Launched in April 2013 and available until 2020, the equity loan element of the Help to Buy scheme is open to first time buyers and homeowners alike. However the scheme is restricted to new build properties, so buyers are unable to purchase character or period homes with the loan. Like @Zoopla says the loan “Requires a minimum 5% deposit of the property value with the Government offering an interest-free loan of a further 20%. The remaining 75% is covered by a standard mortgage.”
This means that, if you wanted to buy a property worth £200,000, you’d need to save up a deposit of at least £10,000. The Government would then provide an equity loan of £40,000, with the rest of the money coming from a standard mortgage. Unlike the mortgage, you won’t pay any interest on the equity loan for the first five years. In the sixth year, you’ll start to pay interest of 1.75% on the equity loan. This rate will increase year on year according to inflation.
When you come to sell your home, the Government will take back its 20% share regardless of whether the property has made a profit or a loss. Alternatively, you can pay back the loan at any point in the first 25 years, but only in minimum 10% increments of the property’s current value.
Help to Buy London
In London, the Help to Buy scheme runs in exactly the same way apart from the equity loan available will be up to 40% of the value of the property compared to 20% for the rest of the country. This reflects the higher property prices in the capital and is designed to make it easier for buyers to save up realistic deposits.
Help to Buy ISA
Launched in December 2015, the Help to Buy ISA has been created to help boost first time buyers’ savings pots. The ISA allows you to deposit £200 per month in your tax free savings account. When you deposit £200, the Government will give you an extra £50 (25%) towards buying your first home, up to a maximum of £3,000 (if you had saved £12,000). This money is paid to your solicitor when you’re ready to purchase your new property. However, the ISA can only be used on homes worth up to £250,000, or £450,000 in the capital.
5% deposit mortgages
Until the end of 2016 there was a further Help to Buy scheme that was available for all types of property where the applicant would only need to find 5% deposit and the lender would provide the further 95% as a mortgage. The Government scheme then indemnified the lenders for this level of borrowing.
Whilst that scheme has now been removed there are still many lenders offering 95% mortgages and in fact the overall situation has been improved as the Government scheme had strict controls on what any applicant could borrow against income. With lenders now offering this finance without the same rules it can allow them to lend more than previously was the case for those with a 5% deposit.
To find out more about the finances available to first time buyers, contact a member of our team today.
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Written by: Andrew Page