For anyone thinking about buying a property the overriding questions are probably going to be whether you’ll be able to afford it and how much deposit you’ll need to pay. Talking it over with family or friends, or even accessing an online budget planner, might help initially but there are also government schemes that could assist you. Here we provide a round-up of what’s on offer.
Help to Buy: Equity Loan Schemes
There are two schemes:
Help to Buy: Equity Loan scheme – for all prospective homeowners subject to legal completion of the purchase by 31 March 2021.
Help to Buy: Equity Loan (2021-2023) scheme – for first time buyers only. It is available from 16 December 2020 for the completion of purchases between 1 April 2021, through to 2023.
Both schemes can help you to buy a new build property. The government lends you 20% (or 40% in London) of the value of the property, provided you can raise 5% of the value of the property and secure a mortgage of up to 75% of its value (or up to 55% in London).
Its interest free for five years but, after then, you will have to pay equity loan fees of 1.75% of the loan’s value. The fee then increases every year, according to the Retail Price Index plus 1%.
After 25 years (or when you sell your home), you have to pay back the % value you borrowed i.e. 20% of the value of the property at that time.
The property itself must be valued at less than £600,000, be the only one you own and not be sub-let or rented out after you buy it
First time buyers might also like to see our First Time Buyer Guide for further information.
Another option is to buy a leasehold property through a housing association on a shared ownership basis where you buy a share of the property (between 25% and 75% of its value) and pay rent on the rest of the share – although you’ll need to find a lender who will offer loans for this purpose.
Over time you can buy a bigger share of your home through what is called ‘staircasing’. The cost will be dependent on what the value of the property is at the time and there’s likely to be a fee to pay for the valuation to take place.
To qualify your household has to earn less than £80,000 p.a. (or £90,000 in London) and you have to be either a first time buyer, someone who used to own their home but can’t afford to buy one now or an existing shared owner, although there are also options for older people or those who are disabled.
The Older People’s Shared Ownership (OPSO) scheme, for example, is for people, over the age of 55, which provides the option to buy up to 75% of your home and, as soon as you own that amount, you don’t have to pay rent on the rest.
For disabled people, who are unable to secure a suitable property under the other government schemes i.e. because the property does not offer disabled access, they may be able to apply to buy up to 25% of their home. It is part of the government’s HOLD scheme; home ownership for people with a long-term disability.
Help to Buy ISA
Although it closed to new applications on 30 November 2019, if you’re fortunate enough to have a Help to Buy ISA, you can still benefit by continuing to contribute to it (up to £200 per month) until November 2030. The government will top up your savings by 25% (up to £3,000) when you come to buy – although this is only available to those buying for the first time. More information is available here
You can put up to £4,000 per year into a Lifetime ISA, with the government then adding a 25% bonus to this (to a maximum of £1,000 per year) which can then, if you are a first time buyer, help you buy your first home.
To qualify you must be over 18, and under 40, and you can only save into the ISA until you are 50 - remembering that the savings into it must not exceed the annual ISA limit Further details about the Lifetime ISA are available here
Overall there are many options available to help you in raising funds to buy, and to prove that you are suitable for a mortgage loan, but usually it’s good to get some expert opinion about what might be best for you.
Why not book an appointment with Embrace Financial Services today to find out if they can help? Your first appointment is free and, as well as checking your suitability for government support, they can give you an indication of the kinds of mortgage on offer, across the market. It might be a great first step to buying your first or next home.