Help to Buy Guarantee scheme closes on December 31st 2016

What are your options to buy affordable and discounted homes?

The news of the end of one of the government schemes to help people onto the housing ladder may, initially, seem to be bad news for those hoping to get support for their first home or second step with a small deposit.

However, it’s important to remember that this particular scheme was only ever really supporting and protecting lenders as opposed to first-time buyers and was launched as a stop-gap policy during the credit crunch.

The Help to Buy Guarantee Scheme was introduced in 2013, encouraging lenders to offer higher loan-to-value mortgages such as 95% loans which had pretty much disappeared during the credit crunch which struck in 2007. The scheme did indeed mean more lenders offered higher loan-to-value mortgages, but it’s worth pointing out that this was mostly through banks, as building societies, less affected by the credit crunch, were already offering them, without the restrictions of Help to Buy.

At the time, the scheme didn’t result in any lower mortgage rates being offered than were already available, despite the fact that the government was effectively underwriting any potential losses that they made if the borrower defaulted. So really the scheme was useful, but never offered any real benefits to the public over and above what was already available.

When announced, the government stated it would end in 2016, so the government is sticking to its plans and indeed there are now plenty of high loan-to-value products available in today’s market at amazingly low rates from a historical perspective.

What options are left to buy affordable homes?

Help to Buy Schemes

The Help to Buy Guarantee Scheme never really offered anything special for you as a buyer. The good news is that the schemes that do, such as the Help to Buy ISA and the Help to Buy Equity Loan, will continue to offer you the opportunity to get on the ladder with government help and support.

Help to Buy Closure

For those who saving hard with a view to buying a property in the future, the Help to Buy ISA means you can secure support of up to 25% additional funds from the government towards your deposit. Any savings of up to £12,000 in a Help to Buy ISA will be topped up by 25% by the government. Even better, if there are two of you planning to purchase, you can use both of your individual ISAs to put money towards one home, getting additional government help of up to £6,000 between you.

Secondly there is the Help to Buy Equity Loan where you can purchase a new build property from participating builders and sites, with up to a 20% interest-free loan for five years. Again this offers a real opportunity to get on the ladder for a 5% deposit and pay no interest on 20% of the money you borrow for five years, so a great deal if there are new builds available in your area.

In London the scheme is even more generous and you can borrow up to 40% as an equity loan, free of charge for five years

Shared ownership

If you are looking at house prices locally and feel you don’t have a hope of buying a whole property, you can buy part of a property and rent the rest. These are sold either as existing homes or as new builds by housing associations and you buy a share of a property and pay rent on the rest.

Even in London, the most expensive place to purchase a property in the UK, this means you can put a roof over your head for less than £100,000 (plus rent) and if the price rises, you get to keep the gains you make on your share when you sell. Alternatively as your income and wealth grows, you can stay in the home and buy more shares in the property until you own it via a mortgage, so it is 100% yours. This eliminates the cost moving, as you trade up from one property to the next as you can afford it. Instead you can invest your money in buying more and more of your existing home.

Other ways to find discounted homes

In the past, it was possible to buy properties which needed work at a discount, but with all the property programmes promoting this as a way to make money, that’s harder now than it used to be. The good news is it doesn’t mean there aren’t some ways you can find properties and buy them for less than others.

Move a little further away

Not necessarily in all areas, but certainly in places such as London, the closer you are to a tube or train station, the more of a premium you pay. So, if you can walk a little further to the tube/train or cycle, catch a bus instead, or commute into city centres from further afield, this can substantially reduce the amount you have to pay for a property.

Of course you have to compromise on the amount of time and money you spend going to and from work.

Buy outside of the ‘busy times’

One thing I’ve always noticed is that the busy times of year typically when people start house hunting are when property prices tend to rise more, so I tend to look outside of these times. Most people shop for property from February through to April and from September through to October.

As such one of my favourite property shopping times is from mid-October to Christmas.

Buyers and even investors are often focused on the Christmas holidays, so viewings tend to drop and sellers become motivated to take offers as they want to enjoy the festive season knowing they have an offer going through on their property.

It also means if you can buy by early January, you can take advantage of the January sales to do up your home, followed by the Easter DIY offers for things you didn’t realise you wanted to change when you first moved in!

Find properties that have been on the market for a while

Another way I’ve managed to secure properties for less than ‘average’ local prices is by finding properties that haven’t sold for a while. One property I picked up was a one-bed flat on a busy road. Although not ideal, what I did realise is when the traffic was at its worst, it was actually very quiet. Rather than racing past the property, the traffic was queuing up to a nearby roundabout. Plus, as there was a speed camera nearby, which meant traffic tended to move at just 30 miles per hour, rather than pass my home noisily, at speed.

The one downside of this is that it’s important to be aware that if it’s on the market for a while and sellers have to take offers, then it may be tough to sell when you need to, so although you get it for a bargain initially, you may need to be patient waiting for offers when/if you come to sell. But if it puts a roof over your head for the next 5-10 years, it may well be worth the compromise.

Need help and advice on finding ways to get on the housing ladder? Then do contact us here at Mortgage Advice Bureau and one of our advisers will be happy to help.