If you’re currently saving for a deposit, the likelihood is that you’ve reeled your spending in. And whether that means meticulous penny-pinching, or making a few simple cutbacks, it can feel like a long road to home-ownership.
There are hundreds of apps on the market to help manage your money, but sometimes a piece of software just isn’t going to cut it. Rising house prices means that the typical 20% deposit keeps getting larger, and the task of pulling together a lump sum even harder.
If you’re reading this and find yourself agreeing, then there are three little words that could help you to purchase a property sooner than you thought: Help to Buy.
This is a collection of three government-backed schemes that help people take steps to buying their own home.
This quick blog takes a look at what Help to Buy actually is, how it works and how you can make the most of it.
Here, we take a closer look:
1. Equity Loan
What is it?
The Equity Loan is designed to assist people who want to buy a new-build property. This is a great option for you if you’ve figured out that you can afford the monthly repayments, but are struggling to pull together a deposit.
How does it work?
You will be required to pay a minimum of 5% of the property value, while the government will lend you up to 20%. The remaining 75% will be made up by a mortgage. And the benefits are twofold — because the scheme provides you with a larger deposit, you will also potentially get access to better deals.
For the first five years, the government loan is interest free. After this time period, you will start paying interest. You’ll repay the loan when you sell the home, or at the end of your mortgage. You can also settle the figure in 10% increments.
A drawback of the scheme is that the government will control up to 20% of your property value. You may therefore need to seek some permissions for making any alterations to your house.
Example:
Lets say you bought a house for £175,000
You would need a 5% deposit = £8,750
The government would lend you 20% = £35,000
The rest would be made up by the mortgage = £131,250
If you then sell the home at a later date for £200,000, for example, the government would be owed £40,000.
How you can make the most of it:
Not all new homes are registered under the scheme, so look for house builders that display a Help to Buy logo.
Once you’ve found a property that’s right for you, we can help you apply for the initiative through an appointed agent. Search for one throughout West Yorkshire here.
It would also be advisable to take advice from a mortgage broker to obtain the 75% loan. If you’re thinking of applying for an Equity Loan, then get in touch with us!
2. Shared Ownership
This scheme works slightly differently to an Equity Loan. It allows you to buy a 25-75% share of a home and pay rent on the remainder. You can also buy more shares when you can afford it.
How does it work?
This initiative applies to households who earn less than £80,000 a year (outside of London) and don’t currently own a home (but may have had a property in the past). You will need to pay a 10% deposit on the share that you’re buying.
The beauty of Shared Ownership is that you will purchase part of a property from a housing association and rent the rest — but at a price less than market value.
Example:
If you purchase a home with a value of £175,000 and buy a 75% share, the housing association will own the other 25%.
Your share = £131,250
The housing association’s share = £43,750
You will need a 10% deposit for the value = £13,125
Your mortgage will then cover the rest = £118,125
How you can make the most of it:
Search for an eligible property throughout Yorkshire using this tool. You can also set up alerts to find out when homes are released.
When you locate the house that’s right for you, get in touch — we can help you find the right lender to fund your share.
3. Help to Buy: ISA
This is probably the most common out of all the Help to Buy schemes. It provides first-time buyers with a 25% cash boost on their deposit.
How does it work?
The initiative applies to all first-time buyers, provided that the home they are purchasing is valued below £250,000.
Most banks offer these types of ISAs, and when you first open it you can make a deposit of £1,200. Thereafter, you can pay in up to £200 per month.
The minimum amount you can earn is £400 and the maximum amount is £3,000, meaning that you must deposit between £1,600 and £12,000 to claim the money.
The great thing is that if you’re buying as a couple, both of you can open an account, as long as neither of you have owned a home before. You can also earn up to 2.27% tax-free interest.
How you can make the most of it:
Open a Help to Buy: ISA today! Even if you’re not thinking about buying a home just yet, the sooner you get started the better. For example, if you have the account for two years and make an initial deposit of £1,200, you will have only earned half of the full £3,000 available to you.
You can open an account any time from now up to December 2019 and you must use the funds before December 2030.
When you are close to purchasing a property, you can instruct your solicitor to apply for the government bonus. It will then be paid directly towards your mortgage deposit.
If you’re ready to take the plunge to buy your first home, then contact us today for a no-obligation consultation.
Your home may be repossessed if you do not keep up repayments on your mortgage.