How Just Mortgage Brokers Can Help You
Help to Buy mortgages incorporated four separate schemes when they were announced in the 2013 budget, intended by the government to help first time buyers and home movers afford to buy new homes in the current economic climate and housing market. The four initiatives that made up Help to Buy were equity loans, shared ownership, NewBuy and the mortgage guarantee.
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Help to Buy Equity Loans
Help to Buy equity loans are only available in England, although similar schemes have been made available by the Scottish Government, the Welsh Government and the Northern Ireland Housing Executive. Equity loans are open to people who want to buy a new-build property, and who have a 5% deposit available. The government will top up your deposit with an equity loan of up to 20% of the property value (maximum £120,000) – in this case, you would take out a 75% mortgage from a lender to buy the property. For buyers in London only, the maximum equity loan is 40% of the property value, up to £240,000. The maximum full purchase price is £600,000 in both London and the rest of England.
Once everything is up and running, you will make monthly payments to the mortgage lender as normal, but when it comes to the equity loan no interest is charged or regular repayments required – other than a £1 monthly management fee collected by Direct Debit – for the first five years. After five years, an interest rate of 1.75% is charged; in subsequent years, the interest fee increases by inflation (measured as the percentage increase in the retail price index) plus 1%. You can either repay the loan in stages (in minimum 10% increments) at any time, or pay it off when you sell the property; the maximum repayment term for the Governments equity loan element is 25 years.
It is important to be aware that when you repay an equity loan, the repayment amount is based on the value of your property at that time, not the original loan amount. For example, let’s say you were buying a property for £200,000. You have a £10,000 deposit (5%), take out an equity loan for £40,000 (20%) and take a mortgage for £150,000 (75%) to complete the purchase. If you sell the property in 10 years’ time and the value has risen to £300,000, then you would need to repay £60,000 (20% of the property’s sale value) to the equity loan. Your share of the sale proceeds would be £240,000 (80% of the sale value) from which you would repay any outstanding mortgage balance.
Shared ownership schemes have existed in various forms for years, and under the current Help to Buy scheme are available to first time buyers, people who used to own a home but can not afford to buy one now, or who are an existing shared owner looking to move. If you have a household income of under £80,000 a year (or £90,000 in London) shared ownership allows you to take out a mortgage to buy a percentage of the property (typically between 25% and 75%) and pay rent to the housing association for the remaining portion of the property, which they own.
The Help to Buy shared ownership scheme can be used to purchase either designated newly built or existing properties. Similar shared ownership schemes are available in Scotland, Wales and Northern Ireland. Alternative schemes are also available for people over 55 (Older People’s Shared Ownership) and who have long-term disabilities (HOLD – Home Ownership for People with Long-Term Disabilities).
NewBuy & Help to Buy Mortgage Guarantee
NewBuy, although now ended, sought to make 5% deposit mortgages from approved lenders available to home movers and first-time buyers. This scheme was intended for those looking to purchase newly built or developed properties priced under £500,000 from a range of specific UK house builders. The mortgage guarantee scheme, also now ended, was also designed to make 5% deposit mortgages more widely available to home buyers. In this case, the “guarantee” was between the government and the lenders, reducing the lender’s exposure to risk and permitting higher lending limits. Both new-build and older properties valued under £600,000 were eligible. Even though NewBuy and the mortgage guarantee schemes have now ended, this does not mean that those looking for a 5% deposit mortgage (or in other words, a loan-to-value or LTV of 95%) are out of options. Due to changes in market conditions, there are now more lenders able to provide higher LTV mortgages, enabling first time buyers and those with a lower deposit to get on the housing ladder.
Buying a new build
There can be many advantages in purchasing a newly built property over an older home; a modern property with brand-new fixtures and fittings, often much more energy efficient than older houses, and usually with smoke and burglar alarms fitted. Add to this the avoidance of the dreaded “property chain”, and the sometimes generous incentives offered by property developers, and it can be an attractive proposition.
The currently available Help to Buy schemes – equity loans and shared ownership, as well as the Help to Buy ISA that is designed to help homebuyers save up for a deposit – make it easier than it has been in years to purchase a modern, newly built home. Also check out the section below for details of another scheme designed to help buy a new property: Starter Homes.
Other affordable home ownership schemes
Although equity loans, shared ownership and the Help to Buy ISA are the only schemes currently branded under the Help to Buy umbrella, they are not the only affordable home ownership schemes out there. Other examples include:
- Starter Homes – At the time of writing this scheme has not yet properly launched, but you can register your interest for more information. Starter Homes is designed to allow first-time buyers under 40 to buy a new-build property at just 80% of the market value. The maximum cost of a home offered via the Starter Homes scheme will be £250,000 outside London, and £450,000 in London.
- Social HomeBuy – This is similar to the Help to Buy shared ownership scheme, and is offered by some (not all) local authorities and housing associations. This scheme gives those who have been in social housing for at least five years the opportunity to purchase a share (minimum of 25%) of the property. You get a discounted price (between £9,000 and £16,000) on the share of the property that you purchase, and pay subsidised rent on the rest.
Help to Buy With Bad Credit
Recent changes to the Help to Buy scheme have made it more accessible to customers with a less than perfect credit history. People can now be accepted for Help to Buy mortgages if:
- They are one year discharged from a bankruptcy
- They have a current IVA
- They have no mortgage arrears in the past 12 months (previous arrears are accepted)
In such cases, customers will need to put down a 10% deposit on the property they are looking to buy, rather than the typical 5%.
Finding the Best Deal to Get You on the Housing Ladder
The various Help to Buy schemes have and will continue to represent a step forward in promoting affordable home ownership. However, to ensure you find the scheme or mortgage which presents the best option for you, speak to one of our expert mortgage brokers today.
At Just Mortgage Brokers we specialise in Help to Buy and similar schemes, and have helped many would-be homeowners get on the property ladder. We can provide expert, impartial advice on home-mover and first-time buyer mortgages and remortgages.