“Help to Buy”: Is it helping?
Help to Buy Options
For many home buyers one of the biggest hurdles to becoming a home owner is gathering that vital deposit together. Help to Buy mortgage schemes were introduced to overcome this and to give thousands of people a foot onto or up the property ladder.
The Help to Buy schemes works by an “equity loan”. In addition, the Help to Buy ISA and Lifetime ISA are saving products that can help you save up that all important deposit for your first home.
How it works
An equity Loan is where the Government lends up to 20% of the cost of your newly built home, meaning you will only need a 5% cash deposit and a 75% mortgage to make up the rest of the purchase price. A big advantage of the scheme is that you are able to buy a home sooner and with a smaller cash deposit.
Equity loans are currently available to both first time buyers and homeowners looking to move. The main requirement of an equity loan is that the home you are hoping to purchase must be newly built with a price tag of up to £600,000.00. The scheme was introduced to help hardworking people take steps to buy their own home.
Statistics have shown that 211,000 equity loans had been made to buyers in England by December 2018. The study by the National Audit Office forecasts that 352,000 home purchases will be supported by Help to Buy equity loans in England by March 2021.
Research has also shown that 31% of buyers could have purchased a property they wanted without the scheme.
Is the scheme worth it?
One of the main selling points of the scheme is that you do not pay any interest on your loan during the first five years. For first time buyers, these years are often the most difficult and so the five year interest free is a breathing space for those who need it.
Equity loans do not come without their faults. There is a wide concern that the scheme has inflated house prices which will trap a some buyers in negative equity.
Negative equity is your financial situation where the current value of your home is less than the amount you have outstanding on your mortgage which can make it difficult or impossible to sell and move on.
If you do fall into negative equity with a Help to Buy loan, you may be in a better position than with a 95% mortgage. This is because the Government owns a percentage share of your property, rather than a monetary amount meaning if your property value drops, the amount you owe on a 20% Help to Buy will also decrease.
There are plans to end the scheme in March 2023. If you wish to benefit from the scheme, there is no better time than now to take advice if you are considering using Help to Buy: Equity Loan.
Help to Buy ISA
A Help to Buy ISA is a tax free savings account aimed at helping first time buyers save for a deposit. An ISA can be used in conjunction with the Equity Loan scheme and is available from most banks, building societies and credit unions. The scheme is available to each first time buyer, not each household and pays first time buyers a Government bonus to boost your ISA savings by 25%.
Help to Buy ISAs are only available until November 2019, from then, they won’t be available to new savers. So don’t delay! If you looking to purchase a property using a Help to Buy scheme then please contact our Property Team at David Gray who will be happy to assist on 0191 243 8167.
