10 Things To Know About The Help To Buy Scheme
The Help to Buy Scheme was updated in April 2021. Great news for First Time Buyers needing a little assistance to get onto the property ladder.
But what we often find with the introduction of new government home buying schemes, is that there can be a lack of clarity– especially if you are new to the market.
To help explain all about Help to Buy, Samantha Bickford, Managing Director at The Mortgage Girl, has provided her insight into the new Help to Buy scheme and what to look for.
What is Help to Buy?
Help to Buy is a government scheme launched over 5 years ago to help those struggling to buy a house get on the ladder. Back in 2013, the UK was facing a housing shortage with the majority of first-time buyers priced out of the market.
The Government addressed this issue with Help to Buy for new build properties only. With the emphasis being on the builders and contractors to take up the scheme, build more houses and get those struggling to raise the deposit they need, onto the property ladder.
The new scheme launched in April 2021 will make Help to Buy only open to first-time buyers and the government plans to end the scheme completely by 2023, meaning there are only about 2.5 years left of Help to Buy!
What are the practicalities of the scheme?
The Help to Buy Scheme gives First Time Buyers struggling to find an acceptable deposit an extra helping hand.
The First Time Buyer must provide a minimum of 5% of the property value, the government then provides an equity loan for up to 20% of the property value, which goes up to 40% for properties in London.
This provides much needed help to first time buyers looking to purchase their first property.
How do I pay back the loan and what will it cost me?
The best thing about the Help to Buy is that for the first five years you don’t actually have to pay anything– well, almost.
You are required to pay £1 a month (consider it an admin fee) to keep your details with the government, but those first 5-years are there to give you a bit of breathing space.
After that, interest does start to apply. The loan is subject to an additional interest fee of 1.75% per annum on the outstanding amount then rising each year by the increase in RPI plus 1%.
This means that after the 5-years is up, you will only be paying back repayments on the interest, this can be expensive! So if you’d prefer to pay off the capital ( the actual loan you took out) then it might be better at looking to pay it off sooner and look into early repayments.
Anything else to consider?
It does depend on where and what you want to buy. The scheme is available in England and Wales, although the process in Wales is slightly different.
How much you can spend on a new property will depend on where in the country the property is and your affordability to raise the amount you need for the mortgage.
The thing to consider, as well, is that this is a scheme managed by the Homes and Communities Agency, so it’s another company that will have an interest in your mortgage.
This can make the administration (also known as conveyancing) lengthier on the solicitor’s side.
10 things about Help to Buy that it is important to know!
- Once you have a 5% deposit saved up you can gain up to an additional 20% of the property price (40% in London) from the Help to Buy scheme for a deposit boost in the form of an equity loan.
- How much you can spend on your new home, will depend on which region of the country the property is in. Full details of the price caps for each region of the country can be found on the Help to Buy website.
- You need to remember that this is a loan and you are expected to pay interest payments after 5-years, but that doesn’t stop you from paying back all or part of the loan if you have the funds.
- If you sell the property, you will have to return the Help to Buy money in a lump sum.
- The Help to Buy scheme is fixed against a percentage of the house price, so if your house rises in value expect to pay more, equally if it drops for whatever reason you will pay less.
- You can ONLY buy a new build using the Help to Buy scheme.
- You can combine a Help to Buy ISA or a Lifetime ISA (where users pay money into an ISA and are then given a cash bonus from the government when purchasing a property) with the Help to Buy scheme to maximise the amount of money available.
- There will be extra paperwork to sign if you are using the Help to Buy scheme and be prepared to pay slightly more in fees when using a Help to Buy scheme, as there are more checks needed when dealing with a third party (the Homes and Communities Agency).
- Make sure your builder is registered in the Help to Buy scheme before you agree to purchase the property, or you won’t be able to use the scheme.
- You will need to ensure you are able to raise the remaining amount after your Help to Buy Loan and your deposit via a mortgage. We recommend that you speak to an Independent and Whole of Market mortgage broker to research your mortgage options.
Looking for more great mortgage tips & advice? Check out our last blog post ‘How First Time Buyers can access FREE MONEY!‘
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