Help to Buy Explained
Trying to get a foot on the property ladder can be a struggle for many people. Often with university debt stacked behind you and a low paid, entry level first job, saving enough money to put down a deposit is a common problem.
The government has introduced a number of different Help to Buy schemes, all aimed at those struggling to get to where they want to be on the property ladder.
Help to Buy: Equity Loan
This scheme is applicable for new build homes only, so if new builds appeal to you, then it might be worth reading up on the terms and conditions of the equity loan.
- The government will lend you up to 20% of the cost of your new build home
- You find the minimum 5% cash deposit upfront
- You therefore have an overall 25% deposit against the purchase price of the house/flat
- You won’t be charged loan fees on the 20% loan for the first five years
- In the 6th year you will currently be charged a fee of 1.75% of the loan’s value. After this, the fee will increase every year in line with inflation. The annual increase in the fees is worked out by using the Retail Prices Index (RPI) plus 1%. For instance
-Years 1-5: no fees
-Year 6: 1.75% of the loan
-Year 7 onwards: 1.75% + RPI + 1%
-These fees do not go towards paying off the government loan
However the larger the deposit you put down, the more mortgage products you’ll have available and generally speaking, the bigger the deposit, the better the mortgage deal.
Help to Buy ISA
If you don’t need to buy right now, but you’d like to start saving with a view to buy at some point in the near future, then this could be a good scheme for you as it acts as a savings account; with a few added benefits.
- The government will boost your savings by 25%
- If you save £200 a month, the government will top it up by £50 each month
- The maximum bonus you can earn is £3,000 (assuming you save £1,200) which would take just over four years
- Visit the Help to Buy website here to use the calculator bonus. You can enter the amount of your total savings to work out how much of a top-up the government will give you.
Help to Buy Shared Ownership
Shared Ownership lets you buy a portion of your own house, which you can usually increase over time, until you gradually own your own house, outright. This is a good way to step into the housing market as the deposit amount is based in the share you buy, so it will be much less, sometimes no deposit is even required!
Many people decide that for example owning 50% of a home, is still much better than owning 0% of a home if they continue to rent.
- You find the minimum 5% deposit of the purchase share upfront (although some lenders will now accept a 0% deposit)
- Purchase a percentage share of your house (between 25% and 75% of the market value)
- Pay monthly rent on the remaining portion
- You can increase your ownership share as and when you can afford to do so