October 19, 2020
Buying your first home isn’t easy, but thankfully the Government offers a range of help to buy incentives that can help you realise your dreams of owning a property. Since 2013, the Government’s Help to Buy scheme has helped almost 250,000 first-time buyers get a foot on the ladder, with over £13bn in state-backed loans issued.
If you’re just starting out, the Help to Buy scheme remains one of the best – and most cost-effective – ways to buy a home. In this article, we explain the range of help to buy incentives on the market today and help you to identify the one that’s right for you.
Before we begin, the information in this article is for guidance only. It doesn’t constitute financial advice, and we recommend that you speak to a mortgage broker before applying for any financial product.
Now we’ve got that out of the way, we can begin.
Will I qualify for a Help to Buy scheme?
Previously, all Help to Buy products were only for first-time buyers who wanted to purchase a property. While products such as the Help to Buy ISA remain closed to anyone but first-time buyers, recently the rules have shifted, and schemes such as the Help to Buy Equity Loan are available to both first-time buyers and existing homeowners.
In this article, we describe the various Help to Buy schemes available and provide some basic information on eligibility. For more in-depth guidance, including details on how to apply to the schemes, please visit the Help to Buy website.
Help to Buy: Equity Loan
The Help to Buy Equity Loan scheme is open to first-time buyers and existing homeowners who want to purchase a new-build property. With a Help to Buy equity loan, you’ll need to provide a 5% deposit. The Government will lend you up to 20% of the purchase price of your new home (up to 40% in London). You’ll need to arrange a mortgage to cover the rest of the outstanding amount.
The Government won’t charge you interest on the 20% loan for the first five years. After this period, you’ll be charged a monthly interest fee of 1.75% of the loan. This figure will continue to rise each year by the RPI plus 1%.
Help to Buy equity loan applications are assessed by a Help to Buy agent who will process some documents required, including affordability checks.
Is the Help to Buy: Equity Loan right for me?
If you’re a first-time buyer or existing homeowner that’s considering buying a new build home, then this scheme could be attractive. While for the first five years you will pay no interest on the Government-backed loan, repayments are high when it kicks in during year six. Many homeowners will hope that the equity in their home has increased and they will be able to remortgage for the full amount, but this can’t be taken for granted, so make plans for repaying the loan.
Your home builder must be registered with the Help to Buy scheme, and the property you’re purchasing must be eligible.
The current Equity Scheme closes on 31 March 2021. After this date, only first-time buyers will be eligible for the support. Finally, you can only use the scheme if the property price is below £600,000.
Help to Buy: ISA
The original Help to Buy: ISA scheme closed to new entrants in late 2019, when it was replaced by the less-generous Lifetime ISA. The Lifetime ISA account allows you to put away up to £4,000 each year, with the Government adding a 25% contribution to your savings each year (with a maximum limit of £1,000 per year).
The money in your Lifetime ISA is locked away until you’re 60, unless you plan on putting it towards buying your first home. In this case, you are able to withdraw the full amount alongside the Government contribution.
Is the Help to Buy: ISA right for me?
The Lifetime ISA gives you control of your money and can be used to invest in a property of your choice, not just a new build. While the 25% Government gift might seem generous, in reality, you’ll only get a maximum of £1000 a year. However, if you’re saving for a deposit, it can be a welcome contribution. If you are buying as a couple, there is no reason that two of you couldn’t get a Lifetime ISA each, and double the returns.
Help to Buy: Shared ownership
The Help to Buy: Shared Ownership scheme allows you to buy a proportion of your home (between 25% and 75%) and pay rent on the remaining share. You can continue to own a proportion of your home, or over time can purchase a larger proportion of it, until you own it all.
Shared ownership schemes are offered on some new build properties, and existing homes by housing associations. To be eligible for the scheme, you’ll need to be a first-time buyer and earn less than £80,000 if you live outside of London.
There is also a shared ownership scheme for people with disabilities called HOLD (Home Ownership for People with Long-Term Disabilities), and an Older People’s Shared Ownership Scheme for those aged over 55.
Is Help to Buy: Shared ownership right for me?
Shared Ownership schemes are a realistic way for many on lower incomes to buy a house or flat. You will benefit from any increases in equity on your home and in time may be able to purchase the outstanding proportion that you don’t own. However, you will be required to pay rent on the proportion of the home you don’t own. Rent prices will be reviewed periodically, and will increase annually, so factor that into your plans.
Need some help with Help to Buy?
Buying a home through one of the many Help to Buy schemes should be a simple and straightforward process. We recommend that you speak to our independent mortgage broker who can guide you through the process and help you find the best product for you and your property.