Find the whole process mind-boggling? We've put together a guide to make things easier
Help to Buy is a government scheme that means you can move into your new home with a deposit as low as 5%. But how does it all work? We’ve put together a guide to help you understand the process of Help to Buy and to show you how you could benefit from it.
Whilst the idea of a mortgage may seem like an impossible task, the Mortgage Guarantee Scheme makes it possible to purchase a pre-owned or new-build property under £600,000 with just a 5% deposit. It’s pretty much the same as a traditional mortgage, the main difference being that the government guarantees a portion of the loan to an affiliated lender. However, it is important to remember that the scheme does not guarantee your payments – it is up to you to make payments on your mortgage under this scheme. The guarantee protects the lender rather than you (the borrower), so you could find yourself in hot water if you do not keep up with your mortgage payments.
This scheme can only be used for a property that you yourself tend to occupy and it must be your only home. In order to take part in the scheme, a minimum deposit of 5% of the property value will be required, and then you must go through the standard process of credit score checks and loan-to-income ratios. Something to remember is that this scheme only applies to repayment mortgages – interest-only and self-certified mortgages are not included.
Equity Loan Scheme
If you’re looking to buy a new-build property, then an Equity Loan Scheme could be the best option for you. With this particular scheme, you can borrow 20% of the purchase price of a new-build property valued up to £600,000. You will need a minimum 5% deposit and will need to be able to take out a mortgage for 75% of the value of the property – the remaining 20% will be funded by the government. Following this, you won’t have to pay anything on the 20% loan for the first five years. In the sixth year you will be charged 1.75% of the loan’s value and this, in turn, increases every year by the retail price index plus 1%.
However, this scheme is not just available for first-time buyers – it is also for those who have purchased a property before. Like the Mortgage Guarantee Scheme, the Equity Loan Scheme only applies if the home is to be your only residence, but the Equity Loan Scheme is only available on new-build homes. You will currently not be able to purchase a home under this scheme if you are looking at doing a part-exchange with a developer.
There are a couple of other options available under the Help to Buy Scheme. Shared Ownership offers buyers a chance to buy a share between 25% and 75% of the home’s value and pay rent on the remaining share. There is always the opportunity to buy bigger shares later on when you can afford to. Shared Ownership properties are always leasehold and you can buy a newly built property or an existing one through resale programmes from housing associations.
Alternatively, you could save money into a Help to Buy: ISA and the government will boost your savings by 25%. So if you open up an account, you must need to have saved at least £1,600 in your Help to Buy: ISA before you can claim the minimum government bonus of £400. The maximum government bonus is £3,000, and once you tell your bank that you are closing your account in order to buy your first home, your solicitor can apply for the government bonus.
FIND OUT MORE
For more information about Help to Buy, please visit www.helptobuysouth.co.uk