Mortgage Success for First Time Buyers

Damian Youell

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Damian Youell

I’m Damian Youell an experience mortgage broker with over a decade of experience. I’m dedicated to helping clients by offering an efficient and friendly service.

Over the years we have streamlined our systems and procedures and adapted processes to enable us to make the whole process very straight forward and easy for our clients.

We pride ourselves on being very approachable feel free to contact me:

Help To Buy Mortgages

Over the 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 with stricter lending laws and regulations since the 2007 – 2008 financial crisis has 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 Ownership and Help to Buy Equity 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.

Post Topics

Help to buy ISA

Help to buy shared ownership

Help to buy equity loan

Pros

Cons

Help to buy mortgage

Next steps

FAQs

 

 

 

 

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 bonus, 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 only 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.

Example:
Property price: £200,000
Your deposit (5%): £10,000
Government loan (20%): £40,000
Mortgage required (remainder 75%): £150,000

 

 

 

Pros

• 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 value (LTV) mortgage which allows access to preferential interest rates and can make monthly payments cheaper.

 

 

Cons

• When you come to sell your property or remortgage 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.

 

 

 

Next steps

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 – Help to Buy Mortgages

Which Lenders are google for First-Time Buyers with Bad Credit?

There are many lenders that offer help to buy mortgages including banks, building societies, online lenders and specialist lenders. Some of these lenders may also offer a bad credit mortgage. As a first time buyer, it is worth noting that your credit score plays an important role in your application. If you have a bad credit history, it would cost you on paying a higher deposit as compared to others. But we at needingadvice.co.uk ltd are working with different lenders who can help you to get affordable bad credit mortgage rates and you can start onto your property ladder without any credit issues. 


Can you get declined for help to buy?

Yes, there are some lenders who do not allow borrowers to apply for help to buy mortgages. They might decline your application due to poor credit rating, low income or lack of assets. However, there are other lenders who accept applications from those who have had a previous bad credit history. These lenders include Nationwide Building Society, Halifax, Santander, TSB, Bank of Ireland, Barclays, HSBC, RBS, Lloyds, Yorkshire Building Society etc.


Can you buy a house with a 500 credit score?

Yes, you can buy a house with a bad credit rating provided you have enough money to pay for the down payment. In most cases, you should have a minimum of 10% down payment. This amount varies depending on the lender and the type of property. For example, Nationwide Building Society requires between 5% and 15%, while Santander requires between 3% and 7%.


Do I need to pay off my debts before applying for help to buy mortgage?

No, you don’t need to pay off all your debts before applying for a help-to-buy mortgage. The only exception to this rule is when you’re buying a home where the seller has agreed to pay off the existing mortgage. In that case, you’ll need to make sure that the outstanding balance on the current mortgage is less than 20% of the purchase price.

 

Can you get help to buy equity loan with bad credit issues?

Yes, you will be able to apply for a help to buy equity loans even if you have a poor credit history. You just need to ensure that you meet certain criteria like having a good employment history, having savings to cover the required down payment and being willing to pay back the loan within the specified period.


Are there mortgage lenders that don’t use credit report?

Yes, there is no standard way of calculating credit scores. There are various ways of doing so such as using FICO, VantageScore, Fair Isaac Corporation or Experian. While some lenders use one method, others use several methods to calculate your credit score. So, it’s best to check with each lender individually to know their requirements.


How does the Help to Buy: Equity Loan work?

The government launched the scheme in 2013 to encourage more people to buy homes. It allows buyers to borrow up to 75% of the value of the property they want to buy. The remaining 25% needs to come from either the buyer or the seller. The government provides a grant of up to £3,000 towards the costs of the deposit. The rest of the money comes from the buyer’s own funds. The buyer must put down a minimum of 5% of the total cost of the property as a deposit. This means that the buyer could spend up to £15,000 on a property. Once the buyer completes his/her payments, he/she gets the full benefit of the interest rate discount.


Can you get a Help to Buy mortgage with defaults?

Yes, you may qualify for a Help to Buy mortgage if you defaulted on any of your past mortgages. If you were unable to repay your last mortgage because of financial problems, then you may be eligible for a Help to Buy Mortgage. However, you may also face difficulties getting a mortgage if you have been late paying your bills. Also, if you have missed out on repaying your mortgage for more than 12 months, you may find it difficult to get a new mortgage. 


What Types of Bad Credit file will Affect My Right to Buy Mortgage Application?

If you have had any bankruptcy, foreclosure, IVA , CCJ or similar court action taken against you, then you won’t be eligible for a Help-To-Buy Mortgage. These types of actions mean that you have failed to keep up with your debt obligations. Most banks will not consider these situations as an acceptable reason for missing repayment mortgages. But at needingadvice.co.uk ltd, we could help you to connect with the right lender for your mortgage application even with an adverse credit file.