The UK Government offer a number of programmes designed to encourage first-time buyers to purchase their first property with financial support, known as a ‘Help to Buy’ scheme. While the Help to Buy ISAs are no longer available, there are still 2 main schemes popular among those looking to save for their first property: the Help to Buy Equity Loan and the Help to Buy Shared Ownership. In this article, we will discuss how both schemes work so you can decide if they will be beneficial when purchasing your first home.
Help to Buy: Equity Loan
A Help to Buy equity loan helps potential homeowners purchase their first home with a small deposit. Requirements state the property must be a new build in England and the applicant must be over 18 years of age. It is the newest scheme launched in April 2021 and will run until March 2023.
How does the scheme work?
To be eligible, you must:
- Pay a minimum of 5% of the property purchase price
- Arrange a repayment mortgage of at least 25% of the price of the property
You will then be able to take out an equity loan of 5-20% of the price of the property (the maximum is extended to 40% if the property is in London) – with the level of interest and equity loan repayments dependent on the percentage you borrow.
Key points to note:
- You will not have to pay interest for the first 5 years.
- On the 6th year, interest will be charged at a rate of 1.75% of the equity loan borrowed.
- The interest rate will increase every year in April by adding the Consumer Price Index plus 2%.
- If you make a part repayment of the loan your interest payments will decrease.
- There will be a £1 monthly management fee until the equity loan is repaid.
- Homebuilders must be registered with the Help to Buy scheme.
- Applying for a Help to Buy loan between January and March will result in slightly reduced interest payments.
Visit the Government website for more information on the Help to Buy Equity Loan and to find out how you can apply. (Rules may vary by country)
Help to Buy: Shared Ownership
Purchasing a home through a shared ownership property means you buy a share of the property and pay rent for the remaining equity. The Help to Buy shared ownership scheme enables people to get on the property ladder with a small mortgage and deposit.
Requirements for eligibility:
- Your combined household income is £80,000 per year or less (£90,000 or less in London)
- You cannot afford deposit and mortgage payments for a home that meets your individual needs
- One of the following applies to you:
- You are a first-time buyer
- You have previously owned a home but cannot afford to buy a new one
- You have previously owned a home but cannot afford a new home suitable to your needs
- You have previously owned a home but are forming a new household
- You are an existing shared owner looking to move
Key points to note:
- Shares available in the property you want to purchase typically vary from 10%-75%, depending on your individual circumstances.
- You can buy newly built homes or existing properties through resale programmes from housing associations.
- The shared ownership scheme includes a 10-year repair period, in which the shared owner will receive financial support from their landlord to pay for essential household repairs.
Visit the Government website to find out if you are eligible to apply for the shared ownership scheme. (Rules may vary by country)
Helping you with first time buyer mortgages
Remove the stress of applying for a mortgage by contacting the team at Choice Mortgage Solutions. We have been working with first time buyers for many years, so we understand the obstacles commonly faced by our clients and can offer effective solutions. As we are independent mortgage advisers, we have access to a wide intermediary market and can recommend lenders who we think will best suit your individual circumstances.
Start the exciting journey of buying your first home and contact our expert mortgage advisors today.