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Could the Help-to-Buy Scheme get you on the Property Ladder?

Fri 13 Jun 2014

The UK government’s Help to Buy scheme has been dogged with controversy since its introduction last year, and part of the system may even be scrapped under EU ruling. But while it’s still around, could you make use of the scheme to get on the property ladder?

What is the Help to Buy Scheme?

It’s a UK government scheme designed to help first-time buyers to get a home, or to help people move home. You won’t be allowed to let out your home in the future and the scheme is not intended for property investors. You won’t be eligible for the scheme if you’re looking to purchase a second home either. The scheme offers four different pathways, which include:

  • Equity Loans:

Buyers stump up a 5% deposit and secure a mortgage for between 75 and 95% of the property’s value. The government provides a loan for up to 20% of the property’s value, which is interest-free for up to 5 years. It’s only available for new-build homes of under approx. £600,000 depending on the area.  If you decided to sell, extend or alter your property, you would need approval from your Help to Buy agent before doing so. To apply, find a local agent.

  •  Mortgage Guarantees:

These are 95% mortgages, available from around 10 different lenders who have opted into the scheme. The government acts as a guarantor for 15% of these mortgages, meaning that they are as likely to be approved as an 80% mortgage. However, monthly repayments will be higher than with the equity loan scheme. These types of mortgages are available for any type of home, not just new-build, though the price must be below £600,000.

  • Shared Ownership

These are part-buy, part-rent schemes. You buy between 25% and 75% of your home’s value (with a mortgage), and pay rent on the remaining portion. Over time, you can buy more shares in your home until you own it completely, however, there’s a good chance that the cost of buying these shares will rise over time, as the overall price of the property goes up.

Eligibility for this scheme is fairly narrow – you must currently rent a council or housing association property, earn £60,000 a year or less, and be either a first time-buyer or someone who used to own a home. If you’re interested in the government scheme, find a local help to buy agent to apply. In London, a scheme called First Steps lets you buy from 25% of a property’s value, then pay rent, capped at 3% of market value, on the remainder. Find out more here.

  • NewBuy

NewBuy covers a selection of new build properties where the developer has opted in to the scheme. This option lets you buy with only a 5% deposit. To use NewBuy, you need to be a UK citizen or someone with indefinite leave to remain in the UK, and the property must have a price tag of £500,000 or less.

So yes, help to buy could get you on the property ladder if you’re either a first-time buyer, or you’re moving to another owned home which is to be your only property. If you come under the above categories but think you may need to let out your home at any time before the mortgage or loan is paid off, you would be better off looking at one of the commercial 95% mortgages that has recently come on the market. Some of these actually provide better deals than the help to buy scheme. Take a look at them here.

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