Help-to-Buy – What does it mean?
Stepping onto the property ladder may seem a daunting prospect but with government schemes running across the UK, help to buy has never been easier. For many years, The Help to Buy ISA scheme has assisted many new buyers to gain access to their first home. This scheme is specifically focused on those buying new build homes only. However, this came to a close in 2019. The Lifetime ISA is still available for new buyers.
What is Help to Buy?
It is an option that allows you to gain assistance with the purchase of your first home; better known as a shared ownership. You can choose to own 25% of the house and can pay 75% of rent. The purchase price must be no more than £600,000 and there is an option to borrow upto 20% of the purchase price interest-free. This lasts for five years but is required to put down a 5% deposit on the property. This scheme is currently available until 2023. For those who are single buyers or on low income, the right to buy is a scheme that offers the most vital assistance.
The way in which you can better understand the way in which it works is that you do not have to apply for a mortgage for 100% of your property, but rather 75% or less which is all you will currently have to repay. You must pay it within 25 years as well as repaying the same percentage of the initial loan.
Who is it aimed at?
There are some criteria that you will need to meet in order to have access to this scheme. Whilst the criteria seems long, it does not hinder you in terms of your income level. It is aimed at first time buyers who have not yet entered into the property market. Here is the criteria that you must hit:
- You must be at least 18 years old.
- You must take out a mortgage for 25% or more of the full price.
- If you own another home in the UK or abroad, you must have sold your current home beforehand.
- You can’t rent out your existing property to buy a second home through Help to Buy.
- Part Exchange is not available.
- You cannot sublet your home using this scheme.
- You must be able to prove you can afford the mortgage repayments and other outgoings on the home you wish to buy. There is a standard Homes and Communities affordability calculator which will aid you in determining if you can manage the repayments long term.
How can you arrange this easily?
You must first ensure that you have met all the criteria and place your interest with the chosen builder. You must reserve your home and pay the reservation fee which is around £500. After this, you must make contact with your local Help to Buy agent who will be able to give you all the details relating to your commitment and how they can assist you further. Once this is approved they will let you know about how to apply for an equity loan.
These loans are selected by the government who will check once again that you are able to afford the chosen property. If not, you may be asked to rethink the choice of home, certain locations will greatly affect the choice. Once this is approved, you will be guided through your choices but it is important to note that you should take independent action too.
Getting information from a financial advisor or solicitor could be beneficial so that you can get to grips with your rights. You can also be prepared with gathering the necessary documentation to purchase your home. There are also lots of online websites that are there to help.
To arrange it, the best idea is to speak with your local Help to Buy agent, and speak to them about your situation. Remember to be honest about your outgoings and your income, offering proof when necessary. With a good credit score also, you will be putting yourself in favour.
How much deposit do I need to put down?
You will require at least a 5% deposit of the full purchase price of the property. So the higher the house price, the bigger the deposit which is why it’s vital to look at properties that are within your budget and monthly repayments, to make the process much more smooth running. If you wish to place a higher percentage down this also is possible. You should however discuss this with your agent to ensure you are making the right financial decision for yourself and that it is within your financial limits.
After five years, you will start to pay interest on the equity loan. After the sixth year, you will see an interest rise of 1.75% which will increase every year following this. It is important to note that this will include the RPI (Retail Prices Index) measure of inflation plus a further 1% until the equity loan is fully paid off.
Is it different to a standard mortgage?
Using Help to Buy means a smaller mortgage and lower monthly repayments. This means that it allows you to still attain a property even if you are buying based on your individual income or on a lower wage than the average. Also, you may find that you get a more competitive rate of interest than a standard 95% mortgage. Often with a standard mortgage you would receive all funding from a lender, but in the Help to Buy case, you are also being partially funded by the government, often lending you upto 20% and a further 20% if you are buying a house in London due to the inflated house prices. Then you will borrow the rest, often 75% from a mortgage lender.
You can take a little peek online to see where your local Help to Buy agent is situated. For further information relating to mortgage lending, please take a look at our website, https://www.csmortgagesolutions.co.uk/.