Advice on negotiating the housing market
Adrian Peel looks at your options when it comes to buying a house
Help to Buy Equity Loan
The Help to Buy Equity Loan allows a buyer to purchase a property on a new-build development.
The government lends up to 20 per cent of the property value and the borrower contributes a minimum of a 5 per cent deposit. The remaining amount is obtained from a participating mortgage lender.
The 20 per cent equity loan is interest free for five years. In the sixth year the buyer must pay a 1.75 per cent interest fee charged on the overall loan, paid monthly by direct debit. The fee increases annually based on the Retail Price Index (RPI), plus one per cent.
The loan can be repaid at any time at an amount equal to 20 per cent of the market value, whether the property value has increased or decreased. Partial repayments are permitted at a minimum amount of 10 per cent of the market value at the time of repayment. The loan must be repaid on the sale of the property, or after 25 years - whichever happens first.
Matt Wilde, sales director at SPF New Homes, works closely with the Savills offices and its buyers around the UK.
“The Help to Buy Equity Loan is not only available for first-time buyers, but also if you’re moving home,” he explains. “Normally if you buy a new-build apartment without Help to Buy, most lenders require a 20-25 per cent deposit, subject to affordability. The Help to Buy scheme allows the buyer to purchase a property with just a five per cent deposit, allowing many more people to access the property market.”
What’s in it for the first-time buyer? Well, they can secure a mortgage without having a huge deposit and will then have a maximum of 75 per cent of the total mortgage value to manage for their first five years that they own their home.
Help to Buy ISA
If you are saving to buy your first home and put your money into a Help to Buy ISA (Individual Savings Account), the government will boost your savings by 25 per cent. So for every £200 you save, you will receive a government bonus of £50. The maximum government bonus you can receive is £3,000. The two ways to make use of the scheme are with equity loans, where the government lends first-time buyers and existing homeowners money towards a newly-built home, and a mortgage guarantee where the government assures your lender it will cover part of any losses they might sustain as a result of the mortgage not being repaid. This is available for all properties across the UK.
To qualify for a Help to Buy ISA, you must be over 16, have a valid National Insurance number, be a UK resident, a first-time buyer and not own a property anywhere in the world. You are also not allowed to have another active cash ISA in the same tax year. If you have opened a cash ISA this tax year, you can open a Help to Buy ISA but will have to take additional steps.
The Mortgage Indemnity Scheme is also known as ‘Help to Buy 2’. It allows a buyer to purchase either a second property or a newly-built property and put down a five per cent deposit. There is no equity loan with this scheme so the buyer needs to take out the remainder on a mortgage. As with the Help to Buy equity loan scheme there are participating lenders, the number of which is reduced slightly when the property is a new-build. To qualify, the property they want to purchase must have a maximum price of £600,000, must not be a second home and cannot be rented out.
Asked who benefits from the scheme, Marika Brundell, who looks after new homes for Carter Jonas in the Cambridge area, said: “It’s a real mix of people. There are a lot of mid-market young families who are now homeowners who wish to take the next step and buy a family home. Help to Buy ISA gives them more flexibility.”
First Buy
Another option available is First Buy in which the government will lend you up to 20 per cent of the value of a property in the form of an equity loan. The buyer has to therefore find a five per cent deposit and secure a mortgage to cover the other 75 per cent of the cost. First Buy can assist you if you want to own your own home and are struggling to save up the deposit needed in today’s housing market. Although this is a government scheme, it doesn’t guarantee any more protection and it is your responsibility to stay on top of mortgage and other loan repayments.
You also qualify if your household earns £60,000 a year (£64,300 in London) or less, or if you have a deposit of five per cent or more and a good credit history. A household can be one person; you and a partner or you and a friend.
Shared Ownership
If you can’t quite afford the mortgage on an entire home, Shared Ownership (New Build) allows you to buy part of a property (between 25 and 75 per cent of its total value) and rent the other part, gradually purchasing more of the building over time until you own the whole thing. Shared Ownership (Resale) is when you take over an existing shared ownership property that the current owner has put on the market. As with New Build, you can gradually buy more of the property until you own it outright.
You are eligible to buy a home through Shared Ownership if your household earns £80,000 a year or less outside London (£90,000 a year or less in London), you are a first-time buyer, you used to own a home but can no longer afford to buy one or are an existing shared owner looking to relocate.
“Shared Ownership is an excellent way of getting on the housing ladder,” said Marika. “It acts as a stepping stone and offers most people a reasonably priced option. They can make money when they sell it and move on to buying a second property with full ownership.”
Rent to Buy
Rent to Buy (not to be confused with Right to Buy) involves the purchase of a newly-built home with the intention of buying it with Shared Ownership. It is a government scheme designed to ease the transition from renting to buying by providing subsidised rent for a number of years. After the time period has elapsed, rent to buy homes give you the option of buying the property outright or entering a part rent, part buy Shared Ownership scheme. However, if you choose not to purchase the property – or are financially unable to – then you must move out of the rented accommodation after five years.
To be eligible you must earn under £60,000 a year as a household (one person or multiple) and be a first-time buyer with a good credit history. Even though you may be eligible, that doesn’t mean you will find the right place for you and there’s no point having subsidised rent if you don’t want to live there.
Right to Buy
This concerns those living in council houses or flats who are considering buying their homes at a discount under a proposed government scheme. The discount depends on where you live, how long you have lived there and whether it’s a house or flat. You are eligible if: it’s your only or main home, it’s self-contained, you’re a secure tenant or you’ve had a public sector landlord for three years, though it doesn’t have to be three years in a row.
Armed Forces Home Ownership Scheme
Members of Her Majesty’s Armed Forces with a minimum of four years and a maximum of six years continuous service qualify for the Armed Forces Home Ownership Scheme, a pilot scheme aimed at helping people buy a home with some extra assistance to top up their mortgage.
HOLD
Home Ownership for people with Long-term Disabilities (HOLD) is an option designed to assist disabled people with acquiring a share in a property under the HomeBuy scheme.
http://www.cheffins.co.uk/