This
blog has been adapted from a very interest Zoopla article written by Laura
Howard on January 4, 2017.
Please
contact us on 0117 325 1511 for any queries regarding items in this article and
we will be delighted to help.
Struggling
to get a foot on (or up) the property ladder? Here's our round-up of Government
schemes that could provide just the boost you need.
Being
a first-time buyer usually means forking out rent, saving for a deposit and
playing catch-up with ever-rising house prices all at the same time. No easy
feat.
But
the good news is there are a range of Government schemes available which could
provide just the boost you need to make it to the first (or next) rung of the
housing ladder. We've outlined them below.
Help to Buy
Help
to Buy provides a leg-up to buyers who can only muster a 5% deposit. While the
scheme is not limited to first-time buyers, the vast majority of applicants
fall into this category.
When
Help to Buy was launched back in 2013, there were two parts to the scheme,
Equity Loan and Mortgage Guarantee. As planned, the latter part (whereby the
Government offered a guarantee to banks and building societies of up to 15% of
the property price to encourage them to lend larger loans) was scrapped at the
end of 2016.
Mortgage
Guarantee did leave a legacy, though. According to Moneyfacts, there's been a
four-fold increase in the number of small deposit mortgages available since its
launch. In fact, some of the cheapest were not even part of the scheme as we
explain in this news story.
5 key property takeaways from the 2016
Autumn Statement
Help to Buy Equity Loan
The
remaining part of Help to Buy is called the Equity Loan. It requires a minimum
5% deposit of the property value with the Government offering an interest-free
loan of a further 20%. The remaining 75% is covered by a standard mortgage.
As
an example, if you wanted to buy a £200,000 property under the Equity Loan
scheme, you'd need a minimum deposit of £10,000 and to qualify for a £150,000
mortgage. The Government then provides an equity loan of £40,000.
This
is how the £40,000 equity loan works:
There
is no interest to pay for the first 5 years
In
year 6, interest (known as a 'loan fee') kicks in at 1.75%
The
rate increases every year thereafter at the RPI (retail prices index) measure
of inflation plus 1%
You
can opt to pay fees in a single annual payment or by monthly direct debit. But
bear in mind they are purely fees and will not go towards repaying the equity
loan.The idea with the Help to Buy Equity Loan is that, because you're
theoretically only borrowing 75% from the mortgage lender, rates will be
cheaper than on a 95% mortgage. However, just like with the now-archived
Mortgage Guarantee, don't assume this is always the case. Make sure you
independently compare mortgage deals.
When
you come to sell your home (or at the end of the 25-year mortgage term if you
decide to stay put), the Government will take back its 20% share regardless of
whether that's at a profit or a loss. You can opt to repay the loan at any time
during the first 25 years but only in minimum 10% increments of the property's
current market value.
The
Help to Buy Equity Loan is only available on new-build properties in England
worth up to £600,000. The scheme will remain open until 2020.
The
Welsh version, which was due to end in March 2016, is now entering a second
phase which spans until 2021 and will support the construction of 600,000 new
homes in Wales. You can find out more here
Help to Buy ISA
The
Help to Buy ISA which launched on 1 December 2015 is designed to boost
first-time buyers' savings pots. For every £200 you save into the account, the
Government will add £50. This is up to a maximum bonus of £3,000 (which applies
to £12,000 of savings).
It's
important to note however (and this transpired some time after the account was
launched) that the Help to Buy ISA bonus cannot be put towards your initial
deposit which is payable at exchange. Instead, the tax-free lump sum will be
paid directly to the mortgage lender at completion.
In
other words, you'll have to save the initial deposit yourself and use the bonus
to reduce the overall mortgage amount and subsequent monthly repayments.
There
are other limitations on the account too, such as a £250,000 price cap on
property the bonus can be used to buy, although this rises to £450,000 in
London.
Only
one Help to Buy ISA is permitted per person and you won't be able to pay into
any regular ISA at the same time. However, you can use your Help to Buy ISA
savings in conjunction with any other Government scheme such as Help to Buy or
Shared Ownership.
Banks
and building societies offer their own Help to Buy ISAs and interest rates vary
so be sure to shop around. You can find out what's on offer here. Some accounts
incorporate an upfront bonus that falls away after an initial 'honeymoon'
period, which is something to watch for when saving over the long term.
Lifetime ISA
In
his 2016 Budget, the Chancellor announced the introduction of the new Lifetime
ISA which offers a tax-free boost of up to £1,000 a year towards either buying
your first home or saving towards retirement.
Savers
aged 40 or under can open these accounts which will become available from April
2017 and put away up to £4,000 each year. The Government will then boost
returns by 25p for every £1 saved and pay the bonus directly into the account
at the end of each tax year.
You
can then opt to use your Lifetime ISA cash as a deposit on a property worth up
to £450,000 anywhere in the UK, so long as you are a first-time buyer. And you
will be able to roll up any cash in your Help to Buy ISA into your Lifetime ISA
without losing the tax-free benefits.
Starter
Homes scheme
In
March 2015, the Government announced the launch of a new Starter Homes scheme.
Having gone quiet for a while, housing minister, Gavin Barwell recently
confirmed that construction on the first Starter Homes would get underway in
2017 with first completions earmarked for 2018. You can read more on this here.
Starter
Homes will be available to buyers aged between 23 and 40 who don't own a home
and have never owned one before.
The
200,000 new homes built under the scheme will be sold at a minimum discount of
20% of the market price. The discount is made possible by the Goverment's
'double whammy' of offering developers the chance to build on cheaper
brownfield commercial land and waiving taxes.
There's
a £250,000 price cap on homes available under the scheme, rising to £450,000 if
you're buying in London. Starter Homes cannot be resold or rented at their open
market value for at least 5 years after the initial sale.
Shared Ownership
As
it says on the tin, Shared Ownership schemes allow you to purchase just share
of a home (between 25% and 75%) from a local Housing Association and pay an
affordable rent on the part you don't own.
Under
a process known as 'staircasing' you'll then be given the chance to buy back
chunks as and when you can afford to until you own 100% of the home. These
chunks will be priced at the home's current market value as assessed by the
Housing Association. You will also have to pay a valuer's fee each time.
To
qualify for Shared Ownership, you don't have to be a first-time buyer but your
household income must not exceed £80,000 or £90,000 if you're buying in London.
The scheme is available on both new-build and resale properties. You can find
out more about Shared Ownership with our guide.
Right to Buy
Right
to Buy enables council tenants with at least three years’ consecutive years
tenancy (reduced from five years in May 2015) to potentially buy their home at
a significant discount. You can find out if you are eligible for the scheme at
the Government website.
Since
6 April, 2016, council tenants (or those living in their homes when it was
transferred to another landlord) will benefit from deeper discounts if they
want to buy their property. These stand at £77,900 or £103,900 if you live in
London.
In
his 2016 Autumn Statement the Chancellor, Philip Hammond announced a new
‘large-scale’ regional pilot of Right to Buy for Housing Association tenants
which will enable a further 3,000 tenants to buy their own home at a discount.
Watch this space.
All
information correct at date of publication.
For
more information about how we can help you with all your mortgage requirements
please visit
