Buying a home has always been the dream for young adults in the UK. The market downturn, tough lending criteria and even soaring house prices have done little to dampen our desire to get on the property ladder. Recognising this, successive governments have developed schemes to help would-be buyers, the most recent – and arguably most successful – of which is Help to Buy.
Introduced in 2013 the scheme forms three parts (the third has not yet come into play) – the equity loan, the mortgage guarantee and the Help to Buy ISA.
What sets it apart from many previous attempts at homebuyer schemes is it is not aimed solely at first-time buyers. Indeed, the government has recognised that it’s not just first-timers who need a little assistance and as such the first and second part of the initiative are available to all buyers, provided they meet the necessary requirements.
Help to Buy 1
The first part of the initiative to go live was the Help to Buy equity loan. Using the scheme borrowers can put just 5% towards their deposit to access a mortgage at 75% LTV with the government providing a loan to cover the remaining 20%.
Mortgages with lower LTVs are more affordable than those in the higher range so using Help to Buy can help you to get a loan with manageable repayments.
You won’t have to pay any interest on the loan for the first five years after which you’ll be charged 1.75% annually with rises in line with the Retail Price Index plus 1% each year.
You’ll have 25 years to repay the loan but if you sell up before then you’ll need to repay it with proceeds from the sale. The scheme will run until 2020, after the government announced an extension to it, and to be eligible you’ll simply need to be looking to buy a new build home for £600,000 or less.
Help to Buy 2
The second part of the Help to Buy Scheme comprises the mortgage guaranteeand was launched three months earlier than originally planned in October 2013.
The mortgage guarantee enables would-be buyers to take out a mortgage with 5% deposit. When the mortgage market suffered a downturn as a result of the global credit crunch lenders became reluctant to offer mortgages with high LTVs.
In other words, anyone who wanted to buy a home had to fork out for a pretty hefty deposit. Under this part of the Help to Buy scheme, the government will guarantee up to
15% of the property’s value thus giving the lender the confidence to offer higher LTV loans. The lender effectively buys this guarantee from the government for a fee.
The mortgage guarantee element of Help to Buy is available on both new build and existing homes worth up to £600,000.
As the borrower you’re still responsible for making the repayment and you’ll still owe 95% of the property’s value but the lender will be more willing to give you a mortgage
because part of it is guaranteed by the government.
The Help to Buy ISA
Unless you’re lucky enough to have someone give you the money for a deposit on a home then the chances are you’re going to do like the rest of us and save, save, save. But how would you like a little help while you do? Under the brand new savings initiative launched by the government in March, that’s exactly what you’ll get. The Help to Buy ISA, announced by Chancellor George Osborne in his Budget speech, sees the government contribute 25% to your savings. That means for every £100 you save the government will give you £25. You can get a maximum of £3,000 from the government (on savings of
£12,000) but as long as you save at least £1,600 you’ll be able to qualify for the contribution.
What’s more, Help to Buy ISAs are available to every firsttime buyer (as long as you meet the requirements) so if you’re buying a property with a friend or a partner you can both take out ISAs and earn up to £6,000 from the government.
To start your ISA you’ll need £1,000 and the scheme will come into effect on 1 December so you’ve still time to save that minimum amount if you need to.
Of course, it’s worth pointing out that you’ll only receive the government contribution if you buy a home. The money will go straight to the mortgage lender when you come to buy and not directly to your account.
The property you buy must be worth £250,000 or less (or £450,000 or less if you’re in the capital) and must be in the UK.
To qualify you simply need to be a first-time buyer and aged 16 or over. You’ll also need to be buying a home to live in and not to rent out.
As with Cash ISAs there are limits to the amount you can put into your Help to Buy ISA each year. The annual limit for Help to Buy ISAs is £2,400 (plus your initial deposit).
It’s worth bearing in mind however that you aren’t allowed to open a Help to Buy ISA and a Cash ISA in the same tax year and the amount you can save in a Help to Buy ISA is much lower than that of a Cash ISA (which has a limit of £15,240 for the 2015-16 tax year). Of course, the Cash ISA doesn’t come with a cash boost from the government so if you’re saving purposely for a house a Help to Buy ISA and a regular savings account might be your best option.
At the moment the scheme is set to run four years, which means you’ll have until 2019 to take one out.