The number of first time buyers is only 15% below the peak recorded during the property boom of 2006. This group also makes up a larger percentage of the buying population (47%) than 10-years ago (36%).
First time buyers have been given a boost by the government’s Help to Buy scheme, which has been given a shot in the arm following Theresa May’s announcement that it will be extended to help an extra 135,000 buy a home. More details will be announced in the Budget on 22nd November, however with this £10 billion commitment, it’s clear that Help to Buy is here to stay.
But how does it work? Is it the right option for you?
Let’s look at Help to Buy in more detail.
Not just for first time buyers
Help to Buy isn’t only available for first time buyers.
Anyone buying a new build property, for up to £600,000 can apply.
To qualify, you must live in England and not own any other property, such as a Buy to Let investment.
Equity loan
The Help to Buy scheme is an equity loan from the government to help you buy your first, or indeed, a new home.
That means, you will only need a 5% deposit (you can contribute more if you wish) with the government adding 20% (40% in London) through their equity loan and a mortgage contributing the final 75%.
No interest is charged on the government loan for the first five years, but they do benefit if the value of your home rises, and therefore gain their 20% stake.
For example, let’s say you bought a home for £200,000:
- You contributed 5%; £10,000
- The government equity loan contributed 20%; £40,000
- You got a mortgage for the remaining 75%; £150,000
If you sold the property for £220,000 a few years later:
- Your share would be worth £176,000, which would be used to repay your mortgage and as a deposit on your new home
- The government’s share would be worth £44,000
Repayments
As we’ve said, no interest is payable on the 5% equity loan for the first five years.
Thereafter, you will be required to pay an interest fee of 1.75% of the amount of your equity loan at the time you purchased your property. The fee will rise each year by an amount equal to RPI (Retail Prices Index) plus 1%.
There is also a management fee of £1 per month to pay from the start of your equity loan.
These payments will not reduce the amount you owe on the equity loan, which will be repaid when you sell the house, or earlier if you wish.
What else do you need to know?
There are several other things which it’s important you know about Help to Buy.
Capital repayment mortgages only: Help to Buy isn’t available on an interest-only basis. You must have a capital repayment mortgage, which means you pay back interest and capital each month, slowly reducing the amount you owe.
No part-exchange: Part-exchange isn’t available with Help to Buy.
Fees: There are no fees charged when you apply for the Help to Buy scheme. However, you will pay the usual fees and costs associated with buying a home. For example, valuation and solicitor fees, Stamp Duty etc.
No Buy to Let: You can’t use Help to Buy to purchase a property that you will let out, either now or in the future. Furthermore, if you already own a Buy to Let property you cannot use the Help to Buy scheme to purchase a property you will live in.
Extensions and alterations: If you plan to significantly extend or alter a property bought under the Help to Buy scheme you will need to apply for permission, which may not be granted.
How can you apply?
Not all builders will offer properties through the Help to Buy scheme, but those who do make it very clear!
However, you will still need a mortgage to help finance the purchase, which is where we come in.
As independent mortgage advisers we can search through thousands of deals to find the right lender and mortgage product for you. We’ll need to find one which accepts Help to Buy, but that’s not usually a problem.
Is Help to Buy right for you?
There seems little doubt that Help to Buy has provided much needed financial assistance to thousands of property buyers.
If you are struggling to build up a large enough deposit to buy a home of your own, and you are happy with a new-build property, Help to Buy could be for you.
If you would like more information about Help to Buy, or are simply considering buying your first, or indeed a new, home, our independent mortgage advisers are here to help you. Call us on 0800 612 8099 or request a call back by clicking here.