Most people dream of owning their own home one day, but soaring house prices and shrinking salaries have made it difficult to get on the property ladder. The biggest obstacle that most first time buyers face is raising enough money for an initial deposit. The majority of mortgage lenders require a deposit of at least 10% of the total value of the property, and a larger deposit can help you secure a better mortgage deal. In order to help people get the keys to their first home, the UK government has designed a number of schemes that provide assistance with either raising an initial deposit or securing a mortgage.
Shared ownership lets people buy a percentage of their home and then pay rent on the remaining amount. Buyers can purchase a share to the value of 25% to 75% of a housing association property. This scheme is available to first-time buyers, ex home owners and even those that are already involved in a shared ownership scheme. To be eligible for shared ownership, households must have an income of £80,000 per year or less or £90,000 for those living in London. There are separate shared ownership schemes for elderly and disabled people.
Those over the age of 55 can purchase 75% of their home through the Older People’s Shared Ownership Scheme and do not have to pay rent on the remaining 25%. Disabled people can use the shared ownership scheme along with the home ownership for people with long-term disability scheme that helps disabled people purchase a property that meets their needs such as a ground floor flat or a larger home with wheelchair access. An estate agent can help disabled people locate a suitable property, and you can view new details about Entwistle Green here along with property listings in the Bolton area.
Help to Buy: Equity Loan
A Help To Buy Equity Loan allows buyers to borrow up to 20% of an initial deposit from the government. Those living in London are eligible to borrow up to 40%. The loan is interest-free for the first five years. Buyers will then be charged a 1.75% fee according to the value of the loan, and this fee will increase each year in accordance with the Retail Prices Index plus 1%.
The loan must be paid back either when the buyer sells the home or after 25 years depending on which comes first. Buyers can pay back the loan in full or in payments of 10%. In order to be eligible for a Help To Buy Equity Loan, buyers must have at least 5% of the initial deposit, and the property must be a new build worth £600,000 or less. The property must be the only one that the buyers own and cannot be rented out or sub-let at a later date.
Help to Buy: Mortgage Guarantee
A Help To Buy Mortgage Guarantee allows buyers to secure a mortgage with a deposit of just 5% of the total value of their chosen property. This scheme offers a guarantee to the mortgage lender meaning the buyer is still responsible for paying back the remaining 95%. Many lenders are reluctant to offer mortgages to buyers with a deposit of less than 10% or even 20% in some cases, so the government offers some security to the lender in case the buyers default on repayments. To be eligible for this scheme, the property must have a price of £600,000 or less, and buyers must secure a repayment mortgage and not an interest-only mortgage. Buyers cannot already own another property and cannot rent the property out after purchase.
Help to Buy: ISA
For those that are saving to buy their own home, the government will top up their savings by 25% to help buyers raise enough money for a deposit. The maximum payment the government will make is £3,000, and buyers must have a minimum of £1,600 in an ISA. This loan can be applied for alongside a Help To Buy Equity Loan or Mortgage Guarantee and does not need to be paid back. A Help to Buy ISA is designed for those that do not own another home, and the property must be priced at £250,000 or less or £400,000 for those purchasing in London.
Before committing to buy a home, it is important to ensure that you are able to keep up the repayments. Mortgage payments can increase over time, and failing to make payments on time can result in you losing your home.
Make an appointment with a financial advisor who will be able to advise you on the best mortgage for your situation and how government schemes can help you purchase your very first home. Louise Fletcher works with a wide range of people, helping them to get onto the property ladder. In her spare time she answers real estate questions and writes articles too.
Don’t miss out on future posts like this – receive updates directly to your inbox by email by adding your email address to the box on the top right of this page and hitting subscribe. You can also find me on BlogLovin, Yummly and Networked Blogs and I’d love to see you over on my Facebook page and on Instagram.