For first time buyers purchasing a house can be a very daunting experience, especially if funds are tight, which in many cases is all too often. However the Government is fully committed to helping first time buyers get on the property ladder and own their own home. There are therefore several initiatives they have introduced under the Help to Buy scheme in order to help first time buyers get on the property ladder and own their first home. Thursfields Solicitors recently had a stand at the Midlands Help to Buy Roadshow at Worcester Racecourse, where we were offering legal advice on the Help to Buy initiative and the details of a Help to Buy transaction. We were also offering advice on the popular Shared Ownership initiative too, of which we can also advise and act on your behalf with.
This article will explain both the Equity Loan Initiative and Mortgage Guarantee Initiative under the Help to Buy Scheme There are however other initiatives under the scheme, for more details visit www.helptobuy.gov.uk, or contact you’re nearest Thursfields office and speak to a member of the Residential Property Team.
You may have been traveling past a new home development and noticed a flag bearing the above logo flying. This means that the new home development is offering the Help to Buy initiative and, if you are a first time buyer and want to a own a new build, the Help to Buy Equity Loan could be for you.
The major advantage of using a Help to Buy Equity Loan is that you only need to pay a 5% deposit on exchange of contracts, and for many first time buyers (if not all) finding the deposit is the most challenging obstacle to overcome, the chance to have it drastically reduced to 5% is a massive help.
Consider; if you are purchasing a new build property at the price of £250,000.00, you would normally pay a £25,000.00 deposit. For first time buyers with nothing to sell, this is a big challenge. However with Help to Buy this would be immediately reduced by 5% to a much more manageable £12,500.00. Sound good? Well it doesn’t stop there, because, on top of that, the government will automatically provide you with a 20% loan of the property’s value to help you with the overall cost, thereby reducing your mortgage requirements! With a 5% deposit, the Government will provide 20% of the purchase price, which means you only need a mortgage for 75% of the property’s value. The other good thing about the Equity Loan is that you don’t pay a penny of the 20% loan back immediately, as you would a mortgage. You have five years, and then an interest only fee is charged after that. However there is no requirement to pay back the loan (you can pay it back whenever you want within a 25 year period) until you sell the property and then the repayment will be deducted from the sale proceeds. The repayment back is 20% of the value of the property at the time you sell it. If house prices have risen you may pay back more than the initial 20%, but if house prices have fallen you will pay back less than the initial 20%. Help to Buy Equity Loans are only available on new build homes, and your mortgage repayments will be charged immediately, unlike the Help to Buy Loan, and you will be responsible for repaying your mortgage.
If you don’t think an Equity Loan is for you, Help to Buy also offers another initiative, called Mortgage Guarantee. This scheme supports lenders offering money on a high percentage mortgage, up to 95% of the value of the property. As a buyer there is then only a requirement to pay a 5% deposit, similar to the above initiative. The Government supports the lender and guarantees the mortgage, which allows them to offer a higher percentage mortgage, thereby supporting people who require this. The onus is still on the buyer to repay the mortgage, plus interest, as the government will not guarantee your payments, just their security in the property. The beauty of this scheme is that it isn’t just restricted to first time buyers, or new homes, plus you can use this scheme if you wish to re-mortgage too.
Finally the Help to Buy ISA is a serious option to consider too. Working in the same way as a regular ISA, by putting money into the pot the government will match every £200 deposited with £50, this ISA has the potential to give you a maximum bonus of £3,000.00 which is then put towards the cost of a new house, and isn’t solely restricted to new builds either. This is only for first time buyers though, who have never owned a home before.
Thursfields can advise and assist in all aspects of the Help to Buy schemes, so if you are considering any of the Help to Buy options, Thursfields can “help”. We have experienced staff who are specialists in new builds, Help to Buy ISA’s and Shared Ownership. For further information visit www.helptobuy.gov.uk or contact you local Thursfields office, and speak to a member of the Residential Property Department.