Are you a first-time buyer or a homeowner looking to move, but have limited access to funds for a deposit? If so, the Help to Buy scheme could be right for you. This is a government funded scheme largely aimed at first-time buyers whereby you could purchase a property with just a 5% deposit.
HOW DOES IT WORK? – The government provide a loan of up to 20% of the property value (or 40% for London), meaning you will then only need a mortgage loan of 75% (or 55% for London) once you provide the 5% deposit. This decreases the LTV (Loan to Value) ratio, raising your chances of a mortgage lender being willing to provide you with a loan. Whilst 95% LTV mortgages are available from some lenders, using the Help to Buy scheme would broaden the scope of lenders you could borrow from, enabling you to shop around and potentially secure a better deal in terms of interest rates. This is hugely beneficial if you are struggling to raise a deposit like many first-time buyers without the funds from a previous house sale. The Help to Buy funds will also strengthen your buying power, in terms of acquiring a higher value property.
Another huge benefit of the Help to Buy scheme is that the first five years are interest free, giving the borrower a few years to find their feet before interest payments begin. After this, in the sixth year, the interest rate will begin at 1.75%, before increasing annually based on RPI plus 1%. This interest-free period, along with the lower interest rates on your main mortgage due to the lower LTV ratio all help ease the financial pressure of managing your mortgage. Overall this is a great step up for people hoping to get onto the property ladder with an extra boost from the government.
ARE THERE ANY RESTRICTIONS? – There are a few limitations to the types of properties the government will provide a Help to Buy loan for, the main one being it must be a new build property under the value of £600,000, whilst in some scenarios, qualifying properties can be lived in previously as long as they still have an active NHBC guarantee, and as such it is likely those particular properties would have been newly built within the past ten years. It is also important that the property is your main residence and not a second home or buy to let. The scheme is also only available on repayment mortgages, and the borrower must take out a first charge mortgage with a qualifying lender. You must also be able to provide a minimum of 5% of the value of the house for a deposit, but if you are happy to comply with these criteria then this is a very effective scheme which can relieve a huge amount of financial pressure, especially on first time buyers.
There are a few repayment conditions too – the loan must be repaid after 25 years, or earlier if you sell your home. The repayment must also be the same percentage of purchase price as the initial loan, i.e. if you borrowed 20% when the house was valued at 200k, your loan amount would have been 40k. If the house is now worth 250k, you would have to pay back 50k. This is also true for if the value of the house falls, as you are borrowing a percentage of the purchase price, not a fixed amount.
Need advice on how to access a Help to Buy loan or to talk through your options? The information and figures stated above are based upon current policy, of which could change in the future. Contact us for a free consultation and honest advice on what is best for you.