Buying a new home is a very expensive undertaking, there is the deposit to consider, stamp duty, solicitor fees, mortgage fees and then moving fees. This can make it seem almost impossible to get onto the property ladder for first time buyers. Fear not though, there are a few government backed schemes which are aimed at making getting your home easier. In this article we will take a look at what schemes there are and what the eligibility criteria is for each scheme.
Saving Schemes
To help save for a deposit the Government has introduced a Lifetime ISA. If you save up to £4,000 per year the Government will add another £1,000 per year. You must be over 18 and under 40 to open up a lifetime ISA and you can only put money into the scheme until you are 50. After 50, the scheme will still pay interest but you won’t be able to put in any more money. You can only withdraw the money from the ISA to help buy your first home, or if you are over 60 or if you are terminally ill with less than 12 months to live.
Help to Buy: Equity Loan
The Help to Buy: equity loan scheme is for first time buyers only and then only if they are purchasing a new build property. You must be 18 or over, be able to show you can afford the payments and have never owned a property either in the UK or abroad of had any form of Sharia finance. The property must be a new build, sold by a registered help to buy homebuilder and be the only home you own and live in. The price of the property is capped on a regional basis. The way the system works if that if you can save for a 5% deposit and can secure a mortgage for 75% of the property valuation then the Government will lend from 5% – 20% (or up to 40% in London) of the property value as the rest of the deposit. No interest is payable for the first 5 years and then in the 6th year you will pay interest at a rate of 1.75%. There is a monthly management fee of £1 payable from the start, though. When you pay back the loan, the Government will take the percentage borrowed of the current value of the property. If for example you bought a property for £100,000 and took a 20% loan then the Government will have paid you £20,000. If you sell your property for £150,000 the Government will require that you pay back £30,000 (20% of £150,000) and this is where they make their money back. The current scheme is open until 6pm on the 31st of October 2022 and all applications will need to be made by that time.
Shared ownership
Shared ownership is where you buy a portion of the property, typically between 25% and 75% of the property value, but can be as low as 10%. A 3rd party will then buy the remaining share and charge rent on that portion. You will need to save a 5% or 10% deposit for the amount you buy. You can buy a new build property, a property being re-sold through an accredited shared ownership re-sale scheme or a home that specifically meets any special requirements you might have. You can buy more shares in your home, which is called staircasing until you own 100% of the property. Typically, shared ownership is offered through local authorities or housing associations.
Help to Build: Equity loan
For the really adventurous, who want to build their own home, the Government offers the Help to Build: Equity loan scheme. This scheme works very similarly to the help to Buy scheme in that you can borrow up to 20% of the value of any land and build (40% in London) up to a cap of £600,000 for both the land and the build and as long as the build is not more than £400,000. You cannot apply for the loan if you are building more than one property, for upgrades to an existing home or if the property will be a second home. You must sell any previous property you own within 12 months of the new home being built. You must have a mortgage for the remaining costs from a registered help to build mortgage provider and who provides specific self-build mortgages. The fees and the interest payments are the same as the help to buy scheme.
Right to Buy
The right to buy scheme is for those living in council owned homes. You will be given the right to buy your council home if it is your only or main home, it is self-contained, you are a secure tenant and you have had a public sector landlord such as a council or housing association for 3 years in total.
Mortgage guarantee scheme
Running until the 31st December 2022, the mortgage guarantee scheme is a Government backed scheme to guarantee 95% mortgages for lenders. The aim here is to incentivise lenders to offer high loan to value (LTV) mortgages of 95%. During the pandemic high LTV mortgages almost entirely disappeared from the market making the deposit requirements for buyers unaffordable. This scheme will increase the amount of 95% mortgages on the market, making saving for a deposit easier.
Getting on the property ladder is never easy but with these schemes, the Government and local authorities are attempting to make the process achievable to more people. It is important to understand each scheme in detail before deciding which option to take and it makes sense to seek independent advice.
