There are several schemes available that have been set up to make buying a home more achievable if you are finding it difficult to save for a deposit.
Help to Buy: equity loans
The Government’s equity loan scheme is designed to help people get mortgages for new-build homes, up to the value of £600,000 with a 5% deposit.
If you pay the 5%, the Government will provide you with a loan to cover up to a further 20% of the property’s value, meaning you will only then need a mortgage to cover the remaining 75%.
To reflect property prices in London, from 1st February 2016 the Government will increase the upper limit for the equity loan it gives new home buyers within Greater London from 20% to 40%.
With London Help to Buy you’ll need to contribute at least 5% of the property price as a deposit, the Government will give you a loan for up to 40% of the price and you’ll need a mortgage of up to 55% to cover the rest.
No fees are charged on this Government loan for the first five years, but in the sixth year a charge of 1.75% will be applied. This fee will then increase annually, in line with the Retail Price Index plus a further 1%.
A condition of this arrangement is that the buyer must then live in this property rather than sub-let it to a tenant or tenants. It must also be the buyer’s only property.
For more information, please see the equity loans section of the Government’s Help to Buy website.
Help to Buy: mortgage guarantees
The Government’s mortgage guarantee scheme is for first time buyers and home movers and helps buyers get a mortgage with only a 5% deposit.
As with the equity loan scheme, the property can cost up to £600,000 and must be the buyer’s only property and not rented out. Unlike the equity loan scheme, the mortgage guarantee scheme applies to the purchase of both new-build and pre-owned properties.
In this arrangement the Government provides the guarantee to the lender, and takes on the risk by underwriting up to 15% of the property’s value. This means that the mortgage will be like a regular mortgage in many respects and before it is approved you will be assessed for affordability to make sure you are able to comfortably make the repayments.
For more information, please see the mortgage guarantees section of the Government’s Help to Buy website.
Shared ownership schemes give buyers the opportunity to buy part of the property from the owner, and pay a reduced rent on whatever is outstanding.
Under this scheme, the buyer will usually buy between 25% and 75% of the property, leaving the landlord, usually the council or a housing association, to own and collect rent on the rest. The owner’s monthly payment will partly cover this rent and partly go towards the mortgage taken out to buy their share in the property.
Over time, the buyer can purchase a larger share of the property from the landlord until they own it outright. At this point they will continue to pay off the mortgage, but will no longer pay any rent.
These schemes have strict eligibility criteria, and are designed to benefit first-time buyers looking for newly-built homes.
If you already own a home, but looking to purchase a new build property you may be able to take advantage of a part exchange incentive that some developers offer. This will appeal to many people looking to move home, as it means you can buy a property even if you have not yet sold your existing one.
In these cases, the developer becomes the buyer of your home, for which they pay a market-related price. The price should be based on independent valuations. The developer usually then sells your old property at a later date.