What are the “Help To Buy Schemes” and how can you use them effectively?

What are the “Help To Buy Schemes” and how can you use them effectively?

Buying a house will likely be one of the most expensive endeavours you will embark upon, and especially when you are doing this for the first time it can seem an incredibly daunting process. Whether you are limited in funds or are looking to get onto the housing market for the first time it’s worth taking a look at what “Help to Buy” schemes are available to you (if you are looking to purchase your first property you may also find it helpful to check out the First Time Buyers section on our website).

Help To Buy ISA

This scheme is specifically for first time buyers and offers the individual the opportunity to set money aside (£1,200 in your first month, then up to £200 a month) and not only will it accrue interest but the government will also add to the total saved when you apply for your first mortgage (25% up to a total of £3000).

To use this scheme effectively it naturally makes sense to start saving as soon as possible. The maximum amount you can save and still get the full use of that extra 25% is £12,000. If you had the full £1,200 to start with and added the full £200 a month without ever taking any money out, it would take you 54 months (4 years and 6 months, ignoring interest) to reach that peak of an extra £3,000 being added to your first purchase.

There are also different interest rates to consider with different Help To Buy ISA providers of which you can go and compare here.

Help To Buy: Equity Loan Scheme

This scheme isn’t specifically for first time buyers but it does have some specific eligibility criteria; The home must qualify as a new build; Have a purchase price of up to £600,000 in England (£300,000 in Wales); Be the only home you own; and is not to be let or rented out once bought.

You must have at least a 5% deposit to hand with the government lending you up to 20% (or 40% in London) of the property’s value, you will then naturally need a mortgage for the remaining ~75% percent (or 55% in London).

With this scheme you will eventually have to pay fees (after 5 years) on your loan of 1.75% of the loan’s value which will increase year-on-year according to the Retail Prices Index plus 1%. You must pay your loan back either after 25 years or once you sell your home. You can also make part payments, however, there is a catch, as you can only pay a minimum of 10% of your property’s market value. To illustrate this say you wanted to purchase a £100,000 property, you had £5,000 to hand, borrowed £20,000 and finally got a mortgage for the remaining amount of £75,000. If you wanted to just make a single part payment to lower your fees you’d have to pay a minimum of £10,000 at a time.

There are opportunities here to use this scheme more effectively and avoid the fees, obviously if after the five years you suddenly come into money and you can buy back from the government the full 20% share to avoid any fees then brilliant, but there is another option. You could remortgage, with many mortgages hitting the market offering up to 5% LTV and get the second mortgage to pay for the loan. Remember, always get independent financial advice when making large financial decisions.

Help To Buy: Shared Ownership Scheme

Shared ownership is available to anyone is either first time buyer, shared ownership occupant or an individual who used to own a property but can no longer afford to buy one. As well as this the occupants must be earning less than £80,000/year (£90,000/year in London). How it works is instead of owning your entire home, you own a share (typically between 25-75% of it) and pay rent on the remaining value.

You will initially have to fund your share of the property through saving or a mortgage. As time goes on you can buy more shares in your home, reducing your rent each month until eventually you own all the shares in your property. Be aware that there can be restrictions on how you can sell your property later on if you don’t completely own it so this is a scheme that those looking to settle down would likely benefit from the most.

There are a couple more specific Shared ownership schemes such as HOLD and Older People’s Shared Ownership you can read about here.

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