During my years of advising clients, many of whom who are first time buyers, I’ve often been asked about schemes that are available to help them to get on the property ladder. Recently, the most commonly talked about is the Help to Buy scheme. It’s a term frequently used but rarely explained in the media, yet regularly picked up by those who might not have a huge deposit but really want or need to buy their first home.
There are actually three different schemes which all use the term Help to Buy, so I thought it might be helpful to provide a brief overview to clarify them all.
Help to buy – shared equity
This is the option that is most widely referenced in the media. It is marketed as a useful option for first-time buyers or those with lower incomes or small deposits. It enables people to get their first step on the property ladder without having to obtain a mortgage for the full value of the property.
Shared ownership schemes (otherwise explained as part buy/part rent), are provided through housing associations and some larger house builders. You buy a percentage share of the value of your home usually between 25% and 75% and then you pay rent for the remaining share.
This mortgage and rental combination, could be less than a mortgage payment for the full value of the property, and helps people to buy homes of a suitable size that their income might not be able to support if solely reliant on mortgage funding. However, it is worth noting that this scheme is not suitable for everybody and an advisor should help you to identify whether the ‘help’ is actually any help at all.
With most schemes you can increase the size of your share at a later stage when you can afford to, (known as staircasing), by buying it from the scheme administrator, therefore reducing the rent accordingly. With shared ownership you can buy a newly built home, or property available through resale programmes, but these are often limited.
Shared ownership properties are subject to several criteria including stipulations about the household income, which can vary between residents of London and the rest of the UK.
Help to Buy: mortgage guarantee scheme
Launched in 2013 to assist people with smaller deposits, the government created this scheme where they basically act as an insurance company for the lenders.
As a borrower you would not necessarily know about these guarantees, they are purely in place to give confidence to the lenders to provide mortgages to those more in need, which tends to be people with small deposits including first time buyers.
All that this means is that there are mortgages available from lenders to help borrowers who would normally be perceived as high risk as they have smaller deposits and need larger mortgages.
The scheme is currently set to run until 31 December 2016 and any guarantees are administered behind the scenes by lenders, so from a borrowers perspective this would work in exactly the same way as any other mortgage application and offer.
As with all mortgage schemes, there are a number of different criteria for eligibility2 to apply for this type of mortgage and your advisor should make you aware of these before proceeding.
Forces Help to Buy Loan (FHTB)
This is a unique product exclusively for those people working in the armed forces. It enables eligible personnel to borrow up to 50% of their salary (and any recruitment and retention pay), subject to the length of service remaining and up to a maximum of £25,000.
The FHTB loan is interest free and must be repaid over a period of ten years or less (depending on circumstances). It has been designed to help services personnel to buy their first home or move to a new location which may be more than 50 miles from their current property, although there may be some exceptions to this.
Hopefully, this overview has helped to clarify what can be a muddy and generalised term, and it shows that there are options available to those people who perhaps currently feel they might not be able to afford to buy their own home. If you would like any help or advice about whether a scheme is available for you, please do get in touch we’d be happy to discuss your requirements.
¹There are a limited number of lenders currently offering this type of mortgage http://www.helptobuy.org.uk/mortgage-guarantee/is-your-lender-in-the-scheme
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