Help To Buy Mortgages
Help to Buy incentives to help more people purchase their first home
What is ‘Help to Buy’
In recent years, house prices have increased much faster than income. Demands on your income have made saving for a deposit a very difficult prospect. Buying your first home has become more challenging financially, in some cases, can be wrongly perceived as a stretch too far.
The government has recognised the issues and have introduced ‘Help to Buy’ incentives to help more people purchase their first home. There is a choice of ‘Help to Buy’ incentives which offer different benefits.
‘Help to Buy Equity Loan’. Available on new build homes only to first time buyers and people who own an existing property but want to move home, subject to meeting the necessary criteria.
For property in England and Greater London, you require a minimum 5% deposit. The deposit can be contributions from personal savings including a ‘Help to Buy ISA’ or ‘Lifetime ISA’ and the government will lend up to a further 20% of the cost of your new build home, (40% for property in London). This is called an ‘Equity Loan’.
You now have a total deposit of 25% towards the purchase price of the property. The remaining 75% required is raised from a lender’s ‘Help to Buy’ mortgage product.
The Equity Loan is interest-free for the first five years and you don’t need to make any repayments during this period. As a result, your monthly mortgage repayments will be lower. After 5 years, interest will be charged at a rate applicable at the time. The ‘Equity Loan’ can be paid off in part or in full, however, the repayment figure will be calculated as 20% of the new valuation of your property at that time. If your property has increased in value, you will pay back more, but if your property has reduced in value, you will pay back less.
NB: The ‘Help to Buy Equity Loan’ ends in 2023 and will only be available to first time buyers from April 2021. In addition, regional property valuation restrictions will apply and will vary on a regional basis.
To find out more about the ‘Help to Buy Equity Loan’ click the link below.
‘Help to Buy ISA’ and ‘Lifetime ISA’. Available to first time buyers wishing to purchase their first home whether the home is an existing property or a new build property.
‘Help to Buy ISA’ accounts are available to eligible people aged over 16 and under 40 years of age. Savers can invest a maximum of £200 per calendar month up to a maximum savings balance of £12000. The government will contribute a further 25% of your balance up to a maximum of £3000 based on maximum savings of £12000. If there are two first time buyers purchasing a property on a joint basis and both have individual ‘Help to Buy ISA’ accounts, they both benefit from the government incentive, potentially receiving a maximum contribution of £6000.
NB: Please note this incentive ends on 30th November 2019 but you can still claim any bonus you’ve earned up until 1st December 2030.
‘Lifetime ISA’ are available from 1st December 2019 and are available to people over the age of 18 and under 40 years of age who wish to save a deposit towards their first home or their pension. Savings of up to £4000 per year qualify for a 25% bonus from the government.
If there are two first time buyers purchasing a property on a joint basis and both have individual ‘Lifetime ISA’ accounts, they both benefit from the government incentive. Savers can continue to invest up to the age of 50 years old.
The maximum property valuation for first time buyers is £450000.
To find out more about the ‘Help to Buy ISA’ and the ‘Lifetime ISA’ click below.
‘Help to Buy Shared Ownership’. If you’re unable to afford a mortgage on 100% ownership of your home, the ‘Help to Buy Shared Ownership’ incentive offers you the opportunity to purchase a share of your home’s value, usually a minimum of a 50% with a 5% deposit,
Property value = £200000
Shared ownership of 50% = £100000
5% deposit = £5000
Purchase balance = £95000 is met with a mortgage.
Rent is paid on the remaining 50% share of £100000.
As your earnings increase, you can increase the size of your ownership, usually in multiples of 25% until you own the property outright. This process is known as ‘staircasing’.
You will still enjoy the benefit from any increase in value on your share and potentially be better value than just renting a property outright. However, property prices can also fall in value.
This incentive can make it easier for those people on lower incomes or who are struggling to save a deposit.
However, there is criteria that needs to be met to qualify for this scheme if you’re looking to buy a home in England. Your household income needs to be under £80,000 a year, £90,000 a year or less in London.
You need to be a first-time buyer
You’ve owned a home previously but can’t afford to buy one now in the normal way
You already have a valid shared ownership arrangement looking to move home
To find out more about ‘Help to Buy Shared Ownership’ click below.
NB: Please note this incentive ends on 30th November 2019 after which ‘Lifetime ISA’ will be available.
You can apply for a Help to Buy ISA until 30th November 2019, after this date you’ll need to apply for a Lifetime ISA.
At the current time, there is no published end date to the Help to Buy Shared Ownership Scheme.
NB: Criteria can change and schemes withdrawn. Mortgage Inspirations does not accept any responsibility for any changes made by the government and/or providers.