Buying your own home can seem like an impossible dream with house prices through the roof, particularly in places like London. But the UK Government came up with some ideas to help people who are struggling to get onto the housing market and they could help you.
Home Buyer Schemes
Here is a brief overview of some of the homebuyer schemes that are available and the rules that apply with these schemes.
Help to Buy ISA
This scheme could be for you if you're a first time buyer. When you are saving money for your first home, the government will match every £200 you save with £50 when you pay the money into your Help to Buy ISA. This means your savings will be boosted by 25%.
The maximum allowance you can get from the scheme is £3,000 but if you are planning to buy a home with your partner, you can both get a Help to Buy ISA. This means you could get up to £6,000 extra to put towards buying your first home.
You do have to pay a minimum amount into your ISA before the government will match it. You have to pay in £1,600 before you get the minimum bonus of £400. To get the full £3,000 you need to save £12,000.
How Help to Buy ISA Works
To get your Help to Buy bonus, your Solicitor or Conveyancer will need to apply to the government once you've found a home.
You'll need to:
- Be over 16 years old
- Have a national insurance number
- Live in the UK
- Be a first time buyer. Make sure the Help to Buy ISA is your only cash ISA in that tax year.
Help to Buy Equity Loan
A Help to Buy equity loan applies to new build property only and allows you to borrow up to 20% of the cost of a new home from the government, with no fees on the loan for the first 5 years. You'll need to provide a cash deposit of at least 5% and secure the rest of the money through a mortgage.
The government has also recognised that London prices are prohibitive and so they've increased the amount of Equity Loan from 20% to 40% in Greater London to help.
How Help to Buy Equity Loan Works
The maximum amount of money you can borrow in the Help to Buy Equity loan scheme is limited to £120,000 outside of Greater London and £240,000 in London and there is no minimum amount you can borrow. You'll provide a cash deposit of at least 5% of the property purchase price.
After 5 years, you'll start to pay interest on your loan. This is payable at 1.75% of the amount you borrowed and will increase each year along with the Retail Prices Index (RPI) plus 1%. Along with the interest, you'll pay a £1 fee every month for the life of the loan as a management fee.
You'll pay back the loan after 25 years or when you sell the property.
To be eligible for a Help to Buy Equity Loan you'll need to:
- Buy a new build property
- Buy a property worth up to £600,000
- Not own any other property
- Be in England.
Scotland, Wales and Northern Ireland do offer similar schemes.
You could be attracted to shared ownership if you can't afford the mortgage on a whole property, i.e. 100% of it. With the shared ownership scheme, you could part own a property. You can choose how much you want to own and this can be anywhere from 25% to 75% with a mortgage. You'll then pay rent on the rest.
How Shared Ownership Works
You decide how much you can afford to own through a mortgage loan and deposit and you'll then pay rent on the rest. This is usually to a housing association. You can buy a new build home or one that is being sold through a resale programme from a housing association.
You'll need to be a first time buyer, a shared owner looking to move or you used to own your own home but now can't afford to. Your household has to earn less than £80,000 (£90,000 in London) to be eligible for shared ownership.
A shared ownership property will be leasehold and you can read more about leasehold properties in Leases on Leasehold Property Explained.
Once you've brought your shared ownership property you can decide to purchase a larger share of your home and even get the point where you own the whole property.
The Help to Buy Mortgage guarantee scheme works in the same way as a normal mortgage. The only difference is that your lender can ask the government to guarantee part of your loan. This scheme allows lenders to offer bigger mortgages, even up to 95% of the value of your home and offers them further protection.
You'll still need a deposit and you'll be paying back your mortgage in the same way you would normally. Your lender will check you can afford to pay to mortgage. Your mortgage will be a repayment mortgage, as any other type of mortgage is not eligible for the guarantee.
How Mortgage Guarantee Works
You can choose to buy an existing property or a new build and its value cannot be more than £600,000. You can't own a property anywhere else in the UK or abroad and you can't let your property out either.
You can't use any other Help to Buy Scheme along with the Mortgage Guarantee apart from Help to Buy ISA and your mortgage must be less than 4 ½ times your income.
Hurry though – the mortgage guarantee scheme is only running until the end of December 2016.
You can see there are a number of different schemes available to help people who are looking for a diverse range of properties. Take some time to see if a Help to Buy Scheme can help you.