There are more would-be first-time house buyers than ever before, who think that they will find it almost impossible to get on the housing ladder without a bit of help to get them started with affordable homeownership.
Many first-time buyers either have to make use of some funding from the bank of Mum and Dad if it is available, towards the deposit, or they turn to one of the homebuy schemes that have been set up to help people achieve their dream of owning their own home.
Home ownership schemes
There are currently four specific home ownership schemes that are being backed by the government for property purchase, with different schemes operating in Scotland, Wales and Northern Ireland.
Here is a look at the schemes available and how you might be eligible to apply in order to assist you in buying your home in England, if can’t afford to do so without extra financial help.
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Help to Buy With Affordable Homeownership
The Help to Buy program, or scheme, is probably the most accessible option in terms of eligibility, as the equity loans offered are available to not just first-time buyers but home movers as well.
The scheme is designed to help people buy newly built homes with a purchase price of up to £600,000 as long as it is intended to be your only property and you don’t sub-let it after purchase.
The government-backed equity loan is designed to bridge the affordability gap by offering you as much as 20% of the purchase price in the form of an equity loan, which is secured against the property. You will be expected to be able to put in a minimum of 5% deposit and then qualify for a mortgage of up to 75% to complete the purchase.
This scheme is understandably heavily subscribed when funds are made available, as you won’t be hit with any loan fees on the 20% portion from the government, not until the 6th year of ownership. You will be expected to pay a 1.75% fee on the value of the loan as a fee in the sixth year and this will increase each year thereafter, in line with index-linked inflation plus 1%.
You will have to buy your home from an approved Help to Buy builder and the loan is repayable when you sell your home or after 25 years have elapsed, which is the normal mortgage term.
Help to Buy – Mortgage Guarantees
You could also take a look at the Help to Buy Mortgage Guarantee scheme, where the government agrees to provide a guarantee to your mortgage lender.
The maximum purchase price of the property your looking to buy mustn’t exceed £600,000 and you will need to be able to offer a 5% deposit from your own resources as part of the qualification process.
The property does not have to be newly built and you do not need to be either a first-time purchaser or have a specific level of income to qualify, although you are unable to use Help to Buy in conjunction with any other mortgage scheme that happens to be publicly funded, or with mortgages that are on interest only terms.
Mortgage lending criteria has tightened in recent years and this has reduced the opportunities for some buyers to be able to afford the house they want, due to a shortfall in their income or deposit availability.
With a shared ownership scheme you can buy equity in percentage share of the property that is anywhere between 1 quarter and 3 quarters of the value of the asset. You will then pay a market rent on the outstanding portion of the property, with a no option to buy the remainder at a later date, sometimes written into the agreement.
In order to qualify for Shared Ownership, you need to be earning a total household income that is below £60,000 and don’t currently own any other property elsewhere. The popularity of this scheme is understandable, especially when you consider that you can purchase a greater share in the property when you are able to.
This situation is referred to as staircasing and the Housing Association will get a current valuation arranged and then agree a figure with you and apply a valuation fee as well.
Help to Buy – New Buy
The other main scheme involves new properties that are worth under £500,000 and are on the market for the very first time and have yet to be traded.
The builder that is participating in the scheme will be able to provide the specific details but you don’t need to qualify as a first-time buyer and there is no limit to your level of income in order to be considered.
Buying your own property might sometimes seem like a distant dream but with some government help, it might just become a reality.
Archie Booth is a property consultant with a banking background. He enjoys sharing his insights to new investors through blogging. His articles appear on property investment websites.