Over recent years, the property market has seen an immense boost in house prices, but in comparison, wages have not been rising at a competitive rate. The slow wage growth and stricter lending laws and regulations since the 2007 – 2008 financial crisis have led to a large proportion of the population struggling to get on the housing ladder. The government has addressed this issue by implementing schemes to help with the process of home ownership.
There are three types of Help to Buy schemes ongoing: Help to Buy ISA, which has now closed to new applicants, Help to Buy Shared OwnershipA scheme where a borrower purchases a share of a property an... and Help to Buy EquityThe difference between the value of the property and the amo... Loan, which are still actively open to new applicants.
Below, we look into the different types of schemes available and whether you qualify to use them.
Help to buy ISA
This scheme is still currently running but closed to new applications as of midnight on 30th November 2019. Those who had opened accounts before the cut off can still continue to save and utilise the scheme until November 2029 under current guidelines.
The scheme provides a 25% cash boost for first time buyers saving to buy their first home. Savers could choose and open a bank account from a range of banks and building societies that offered Help to Buy ISA accounts.
You are eligible to deposit a lump sum of up to £1200 in your first month and every month after that you can save up to £200 and receive a 25% boost on the amount you save, meaning if you saved £200 you will receive a £50 top up from the government.
To claim the bonusIncome received as a bonus, which may affect a borrower's ab..., you must have saved at least £1600 throughout the period as the minimum amount of government top up issued is £400. The maximum amount you can receive from the government bonus is £3000, which requires a saving of £12,000.
When you come to purchase your first home, the bonus will be requested on your behalf by your solicitor and the government bonus will be added to the funds you are putting towards your property.
The scheme can be used on any type of property and mortgage, even if you wish to utilise the other schemes such as shared ownership. The only exception is if you plan to buy a property over £450,000 in the borough of London or £250,000 elsewhere then you don’t qualify for the bonus.
There are other criteria’s to qualify for the government bonus where the property you intend to purchase must be in the UK, be the only home you own, where you intend to live in and be purchased with a mortgage.
There is no real loss to using Help to Buy ISA if you are planning to save or intending to buy your first property in the future. The interest rates on Help to Buy ISA accounts are generally better than others so even if you don’t qualify for the government bonus when you come to buy your property for whatever reasons or decide you no longer wish to buy a property, you can still take your savings back and keep the interest accrued.
Help to buy shared ownership
Shared Ownership allows someone to part-buy, part-rent a home from housing association and the share you can initially purchase is usually between 25% – 75% of the property price. You are given the option later on to purchase more of a share of the property from the housing association until you own the full 100% in a process called ‘staircasing’.
You provide a deposit (typically between 5% – 10%) and take out a mortgage for your share of the property. For the remainder share of the property you pay rent to the housing association until you have purchased 100% share of the property.
Click this link for a more in depth look into Shared Ownership as well as the advantages and disadvantages, and whether it’s the right scheme for you.
Help to buy equity loan
Some people interpret the Help to Buy Equity Loan as having two mortgages.
Essentially you pay a deposit of at least 5% whilst borrowing up to 20% of the cost of a new built home (up to 40% in London boroughs) from the government to add to your deposit and getting a mortgage for the remainder. This share the government has loaned you will need to be paid back when you come to sell the property or at the end of term and how much you pay back depends on the properties current market value, not the original purchase amount. If you decide to keep the property, you have the option to pay the government back in lump sums or to keep the loan and make interest onlyA mortgage where the borrower only pays the interest on the ... payments after the initial 5 years which are interest free.
The scheme is eligible for new builds only for first time buyers or an existing home owner who wish to sell their home to buy a new built house. The property price must not be more than £600,000. The current scheme will end February 2021 but the government has confirmed they will extend this scheme till March 2023.
Property price: £200,000
Your deposit (5%): £10,000
Government loan (20%): £40,000
Mortgage required (remainder 75%): £150,000
• Could help first time buyers get onto the property ladder quicker.
• Smaller deposits required as the government can top the rest.
• The first five years of borrowing from the government is interest free.
• Will usually require a 75% loan to valueThe ratio of the mortgage amount to the value of the propert... (LTV) mortgage which allows access to preferential interest rates and can make monthly payments cheaper.
• When you come to sell your property or remortgageRefinancing an existing mortgage with a new mortgage. to pay the government back, if your property has increased in value you will have to pay back the government’s percentage share of the properties new market value.
• Difficult to predict what the interest only payment back to the government will be after the initial five years which might make it difficult to budget.
• Can’t rent the property out whilst you still hold the government loan.
Help to buy mortgage
Whichever scheme you feel is more suited to your situation and intend to use will still require you to take out and be accepted for a mortgage. You will need to let your mortgage broker know if you intend to use a government scheme.
Whether you can qualify for a mortgage will still depend on your personal situation, even if you use a government scheme, such as your income, affordability, credit history and other lender criteria’s and requirements. Lenders will still need to be satisfied with the assessment of the property at valuation.
By partaking in a scheme, it can possibly lower your loan to value (LTV) ratio which opens up more products and competitive rates and could lead to lower monthly payments.
Updates to the schemes are made frequently so it is important to keep up to date with the latest changes through the government’s Help to Buy [add link] website.
Get in touch if you want to find out which scheme is right for you and discuss how you can get a mortgage.
FAQs on Help to Buy Mortgages
1. What is a first-time buyer mortgage, and how does it work?
A first-time buyer mortgage is a loan for people who have never owned a property before. As a time buyer, you borrow money from a mortgage lender to buy a home. The amount you borrow, plus interest, is paid back in monthly payments over a mortgage term. The length of this term and the mortgage rate affect your monthly mortgage repayment.
2. Can I buy a home in Northern Ireland with a government equity loan?
The government equity loan scheme is available in different parts of the UK, including Northern Ireland. This loan helps you with the purchase price of a newly built home, reducing your initial mortgage and deposit requirements.
3. What is a guarantorA person who guarantees to repay a mortgage if the borrower ... mortgage?
A guarantor mortgage allows a parent or family member to guarantee your mortgage payment. If you can’t make a monthly payment, your guarantor is responsible. This type of mortgage is often used by first-time buyers with a smaller deposit or lower credit rating.
4. How much deposit do I need for a mortgage?
The minimum deposit typically ranges from 5% to 15% of the property purchase price. A larger deposit generally means better mortgage rates and a lower monthly payment. Deposit requirements can vary by mortgage provider and mortgage product.
5. What’s the difference between a repayment mortgage and an interest-only mortgage?
With a repayment mortgage, you pay back part of the loan and the interest each month. By the end of the mortgage term, you’ll own the home outright. An interest-only mortgage means you only pay the interest monthly, and you must repay the loan in full at the end of the term, typically by selling the house.
6. Are there special mortgages for shared ownership homes?
Yes, shared ownership mortgages are designed for shared ownership schemes where you buy a portion of a home from a housing association and rent the rest. You own part of the home and pay a mortgage on the portion you own and rent on the remainder, along with any service charge or management fee.
7. What is a mortgage broker, and do I need one?
A mortgage broker is a specialist who can offer fee-free mortgage advice and help you find the best mortgage deal. They have access to a wide range of mortgage products from various mortgage providers and can navigate through your mortgage situation to find a suitable mortgage solution.
8. How do I know how much I can borrow for a mortgage?
Your borrowing capacity is determined by your income, credit rating, debts, and overall mortgage affordability. A mortgage calculator can give you an estimate, but for a more accurate figure, consider a fee-free initial mortgage appointment with a broker or advisor.
9. What is a fixed-rate mortgage vs a variable-rate mortgage?
A fixed-rate mortgage keeps the same interest rate for a set period, meaning your monthly mortgage repayment won’t change during this time. A variable rate mortgage means the interest rate can change, usually in line with the Bank of England’s base rateThe interest rate set by the Bank of England, affects the in..., affecting your monthly payments.
10. What is the mortgage guarantee scheme?
The mortgage guarantee scheme is a government-backed scheme to encourage lenders to offer 95% mortgages (meaning only a 5% deposit is needed) to home buyers. This scheme is aimed at helping more first-time buyers onto the housing ladder, especially those with smaller deposits.
11. How does remortgaging work?
Remortgaging is when you switch your existing mortgage to a new deal, possibly with a new lender. You might remortgage to save money with a lower rate, borrow more money, or adjust your mortgage term. It’s a way to find a better mortgage solution as your situation or the market changes.
12. What is negative equityA situation where the value of the property is less than the..., and how does it affect me?
Negative equity means your house is worth less than the remaining mortgage. This can happen if property prices fall. If you’re in negative equity, selling your home won’t cover the mortgage, and you might find it hard to move house or switch to a better mortgage deal.
13. How do I apply for a Help to Buy Equity Loan?
You apply through a Help to Buy agent in the area where you want to buy. The scheme is for newly built homes and requires at least a 5% deposit. The government provides an equity loan of up to 20% (40% in London) of the home’s value, interest-free for the first five years.