First Time Buyer Government Schemes
The mortgage market is slowly starting to get more competitive with new, better value mortgages becoming more available… But lenders are still cautious and the majority of the best rates are only available if the borrower has a large deposit or equity. Sadly that is unlikely to be the case for most first time buyers, who understandably struggle to raise just 5% deposit with the sky high rental market. It can be a frustrating catch 22 situation, and not just for the first time buyer – but the building industry is also suffering due to lack of funding for first time buyers, despite the desperate need for more housing.
Thankfully the government is trying to do something about this, and despite all the news headlines, the various schemes are helping buyers to secure funding which would otherwise be out of reach.
The first time buyer government schemes all seem to have similar names, and many people get them confused, so here we try to briefly explain what each one offers and what you need to qualify. For more information, or if you are unsure which is the best scheme for you please get in touch with Ascot for a free initial telephone consultation, and we will explain which is the right one for you.
Help to buy
This scheme, which was introduced in March 2013, is designed not only for first time buyers, but anybody looking to buy a newly built home, up to the value of £600,000. The scheme asked first time buyers to contribute a deposit of five per cent; the Government adds a loan for twenty per cent of the price; and the mortgage covers the other 75 per cent. For the first five years of the Government loan, you will not be charged any fees or interest, but from the sixth year you will be charged 1.75 per cent of the loan’s value, and the fee will increase annually.
The benefit of this scheme is that the home is in your name, so you can sell the property at any time. The Government’s loan must be paid back by the end of the mortgage period or if you sell your home: whichever comes first. So long as the loan is for at least ten per cent of your home’s value, then you are able to pay back either ten or twenty per cent of the Government’s loan without selling the property.
Shared ownership schemes
These schemes are specifically designed for first time buyers, or people who used to own a property but no longer do. This scheme is only available to those who earn less than £60,000 per year, as a household. The principle of the agreement is that you buy a share of the home (this can range from 25 to 75 per cent), which you need a mortgage for. The rest is paid back through rent to the housing association, where you buy the home from. You can staircase, i.e. buy more shares in the home, at anytime you like, and you can do this through the housing association’s valuation. If you want to sell the property, then you can but you must give the housing association first choice on buying it: this stands for the first 21 years after you buy the home.
This scheme asks for only a five per cent deposit. The property must be a new build, in that it’s completely new or it is being sold for the first time in its current form (so it might have been an old house, but turned into new flats.) The value of the property must be £500,000 or less, and the scheme cannot be used to buy a second home, or a buy to let property, and must be owned fully by you (i.e. not part of the shared ownership scheme). In addition, the scheme only applies if the builder who you are buying from is taking part in the scheme. You don’t need to be a first time buyer, and there is no income restriction on this scheme: the criteria is that you can repay the mortgage, and you apply for a mortgage through a lender, as you would usually.
Right to Buy
This scheme applies to a council tenant, or a council tenant who was living in the property when it was sold to a private landlord. The tenant must have been living in the property for five years or more. The scheme allows tenants to benefit from the increased security and investment, of home ownership because it gives a discount on the purchase price of their property. The maximum discount is £75,000, or £100,000 if you live in London.
As the name suggests, this scheme is tailored for first time buyers and it means that the Government, and the developer, will give first time buyers a twenty per cent equity loan to assist with the purchase of a house, up to the value of £280,000. Like the ‘Help to Buy’ scheme, the loan is free for the first five years, and then it increases to 1.75 per cent per annum, and will increase annually: if you sell the house, you need to pay this loan back first. The buyer in this scheme will need a five per cent deposit, and then after the first year of home ownership will be able to staircase, through paying off some of the Government’s loan to own that share of the property. Although you will have a mortgage for less than 100 per cent of the property’s value, you will own the whole property.
People who want to take part in this scheme must be unable to buy a house without assistance, and not earn over £60,000. There must be evidence that the applicant can pay other costs, such as legal fees and stamp duty, and be on a permanent contract of employment. You must have a good credit history, and must not be named on any other property’s mortgage or deeds.
All these first time buyer government schemes are ideal to help struggling first time buyers get onto the property ladder but like any financial contract, they must be treated with caution. Using a broker like Ascot Mortgages is one way of getting impartial and sensible advice, which will allow you to benefit from these opportunities and know that they are the right choice for you – please get in touch to arrange a free initial telephone consultation.