There are many things you can do to get yourself in the best position to get a mortgage.
Trying to get your foot on the property ladder can be a challenge; student debt coupled with an entry-level first job can make it tough to save money for your deposit, particularly if you’re paying rent as well.
To help more young people to purchase their first home, in 2013 the government introduced a number of different Help to Buy schemes. These include the Help to Buy Equity Loan scheme, the Help to Buy ISA, and the Help to Buy Shared Ownership scheme. All are aimed at helping those struggling to get to where they want to be on the property ladder.
This scheme is available on new build homes only and is open to first time buyers, as well as people who own an existing property but want to move home, providing they meet the necessary scheme criteria.
There are different Equity Loan schemes for England, Greater London, Wales and Scotland, and they all vary slightly. For more information please click here, but the following details refer to the Equity Loan Schemes for England and Greater London only.
After five years, you’ll be charged interest on the Equity Loan at the prevailing rate. However, you can pay off the Equity Loan at any point and either reduce your Equity Loan amount or pay it off completely.
It’s important to remember that you’ve borrowed a percentage of the value of the property from the government. So, for example, if your Equity Loan is 20% of the value of the property at the point you purchase it, and the value of your home rises, you’ll need to repay 20% of the new value of the property when you sell it or pay off your Equity Loan, not the original amount that you borrowed. Equally, if the value of the property decreases then you’ll be liable to pay 20% of the reduced value of the property at the point you sell it, or when you repay your Equity Loan, not the original amount that you borrowed.
You can find out more by reviewing the terms and conditions of the government Help to Buy Equity Loan here.
The government’s Help to Buy ISA has now closed to new applicants, but if you already have an account, don’t worry, you can keep saving into it until 30th November 2029 but you must claim your bonus before 1st December 2030.
From 1st December 2019, if you’d like to save towards either your first home or your pension, and you’re over 18 and under 40, you can apply for a Lifetime ISA.
With a Lifetime ISA, you can save up to £4,000 per year, and the government will give you a 25% bonus on your savings. You can save up to £4,000 per year until you’re 50.
You can use the savings and bonus from your Lifetime ISA towards the purchase of your first home, providing that the property you purchase is valued under £450,000.
If two first time buyers are purchasing together, you can combine your savings and bonuses from the government from both of your Lifetime ISAs.
You can find out more about the Lifetime ISA here.
If you can’t quite afford the mortgage on 100% of a home, the Help to Buy Shared Ownership scheme offers you the chance to buy a share of between 25% and 75% of your home’s value, and then pay rent on the remaining share. Over time, as you earn more, you can increase the size of your mortgage until you own the property entirely, a process called ‘staircasing.’
Shared Ownership schemes might be a good option for some people who may not be able to raise a mortgage which is large enough to buy a home in the conventional way, but means that they can at least part-own the property they live in, and benefit from any increase in value over time. It also provides long-term security, which may be better than simply renting a property.
Typically, you would raise a mortgage on half of the purchase price of the property, and pay a deposit of 5% on this amount, rather than the full amount of the purchase price. Again, this can make it easier for those people on lower incomes or who are struggling to save a deposit.
There are a few conditions to determine if you're eligible for this scheme. You could buy a home through the Help to Buy Shared Ownership in England, if:
To find out more about Help To Buy Shared Ownership schemes, click here.
The Help to Buy ISA has already expired to new customers, but the Lifetime ISA is a very similar scheme.
The Help to Buy Equity Loan scheme will run until 2023. However, from April 2021, there will be two major changes to the scheme:
Applications for the new Help to Buy Equity Loan scheme (2021/2023) can be made from 16th December 2020. Applications for the previous Help to Buy Equity Loan scheme will no longer be available from this date.
At the current time, there is no published end date to the Help to Buy Shared Ownership Scheme.
Are you interested in taking advantage of the Help to Buy scheme to purchase a property? To find out more, please get in touch with us to speak to an adviser in more detail.
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances.
The fee is up to 1%, but a typical fee is 0.3% of the amount borrowed.