Help to Buy Schemes

There have been many news articles relating to the launch of the Government’s Help to Buy Schemes. With varying schemes available you may be finding it hard to identify if any of the schemes are available to you and if so, what scheme is best suited to your circumstances.

Help to Buy is a government programme which was designed and set up to assist first time buyers onto the property ladder and assist with home movers in the residential market. The Help to Buy Equity Loan schemes were first announced in the 2013 budget and was launched on 1^st April 2014. The introduction of further schemes have been attached to the programme over the last few of years, below is a short summary of these schemes

Help to Buy: Equity Loan

This is a scheme eligible to both first time buyers and home movers to purchase a new-build property with only a 5% deposit, up to a maximum purchase price of £600,000. You must not own another property at the time you buy your new home with this scheme.

The Government then lends you up to 20% of the cost of the new build property in the form of an equity loan, which is interest free for the first five years.   (Example 1 – if you purchase a property for £200,000, your 5% deposit would equate to £10,000 and you would use the Government 20% loan of £40,000, leaving a mortgage of £150,000).

This allows you to then purchase a property with a 25% deposit. This does mean that your monthly mortgage payments will be reduced over the first five years and in many cases gives you access to cheaper mortgage rates, as you will only require a mortgage of 75% of the properties value.

When you come to sell the property – if the equity loan has not been repaid previously – the 20% equity loan would be repayable at this point, based on the value that the property is being sold.   (Example 2 – you sell the property for £210,000, the equity loan to be repaid at this point would remain at a 20% share equating to £42,000).

If you keep the property and do not pay any of the equity loan back within the ‘interest free’ initial five year period, from year six interest is charged on the loan at a rate of 1.75%. The following years will be increased at the retail prices index, plus one percent. (Example 3 – if the RPI in year seven is 3%, the interest rate would rise by 4% (3% plus 1%) and the rate therefore payable in year seven would be 1.82%).

If you are part of the armed forces or live in London, there are specific Help to Buy loan schemes available to you. Please get in touch with us for more information relating to any of these schemes.

Help to Buy: Mortgage Guarantee

This scheme allows both first time buyers and home movers to purchase any property on the open market (not just new builds), with a deposit of 5%. You must not own another property at the time you buy your new home with this scheme.

The scheme was introduced, as previously the minimum deposit available to first time buyers and home movers to get onto the housing market was typically 10% deposit. The scheme now enables those buyers who did not wish to purchase a new build using any equity loan scheme, to get onto the housing market with just a 5% deposit, up to a maximum purchase price of £600,000.

As lenders were not offering rates to customers with a 5% deposit, the scheme allowed lenders to start offering these higher loan to value interest rates, as they will now have the security from the Government that should a borrower default and be repossessed, the Government will back 15% of the properties value as an insurance in these instances, resulting in the lenders viewing this purchase as less ‘higher risk’ to them. (Example 4 – if you purchase a property for £200,000, you can purchase with a 5% deposit of £10,000, leaving you with a mortgage of £190,000 – the lender then knows that if the worst happens and your home is repossessed, 15% of the property value is covered by the lender).

Help to Buy: ISA

This scheme is for first time buyers only, who are saving to purchase their first home. If you are a first time buyer and you save into a Help to Buy ISA the Government will provide a bonus of 25% on the interest and contributions once you are in a position to purchase. The bonus funds will be sent directly to your Solicitors at the time of your purchase, these funds can be used towards your deposit funds or the purchase related costs.

For every £200 you save, you will receive a bonus of £50. Up to a maximum government bonus of £3,000. The Help to Buy ISA’s are available to the individual first time buyer, which means that if you are purchasing with a partner, you could receive a government bonus of up to £6,000 towards your first home together.

Many of the High Street Banks and Building Societies are now offering Help to Buy ISA’s with very competitive interest rates attached to their accounts. If you are a first time buyer and you are currently on the road of saving for your first purchase, the Help to Buy ISA is great, as you will receive additional funds in the form of a bonus just for saving into these accounts!!

For more information about Help to Buy or to arrange an appointment with one of our experienced mortgage consultants, please get in touch with us on 01275 861014 or by email to advice@openvisionfinance.com