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Help to Buy

Help to Buy

There’s never been a better time to buy a home than right now – thanks to a new Government scheme designed to help property purchasers.

If you want to buy your own home – but were wondering if you could afford it – then you’ll be glad to know that right now is an excellent time to buy!

The housing market is becoming promisingly buoyant once more, and – better still - the Government has introduced several home-buying schemes designed to help those who might otherwise struggle to put sufficient finance in place to buy their own homes.

The first scheme, Help to Buy equity loans, was launched in April 2013, whilst on the 8th October 2013, several months ahead of schedule, the Prime Minister and Chancellor launched the second part of the scheme, Help to Buy mortgage guarantees.

Both schemes are ideal for those who seriously want to buy their own home, but need the right kind of help to do so – and the details are set out below:

 

Scheme 1 - the Help to Buy equity loan

Who can apply?

Potential homebuyers who fit the following criteria:

  • You’re a first-time home-buyer - or an existing home-owner looking to move up the housing ladder.

  • You’d like to buy your own newly-built home (i.e. not an older, existing property).

  • You live in England (Wales and Scotland have their own schemes).

  • Your proposed new-build home costs no more than £600,000.

  • You would struggle to successfully apply for a low-deposit mortgage OR

  • You would struggle to afford payments on a low-deposit mortgage.

What is the Help to Buy equity loan scheme?

If you are suitable applicant for the scheme, and your application is successful, the government will provide you with an equity loan worth up to 20% of the value of the new-build home you want to buy.

How do I raise the rest of the purchase price?

  • You’ll need to provide at least 5% of the property price as a deposit.

  • You’ll need a mortgage of up to 75% to cover the rest.

How does the government loan operate?

  • Your loan will be interest-free for the first 5 years; in the 6th year, you’ll be charged 1.75% of the loan’s value. From year 7 onwards, the fee will increase each year. The increase is calculated by using the Retail Prices Index plus 1%.

  • You can repay your loan at any time during the ownership of your new-build home - or when you sell it.

  • You won’t be able to sub-let your home if you use this scheme.

  • You can’t use the property as a second home.

  • The property will be in your name, which means you can sell it at any time.

What about paying back the government loan?

You must repay your government loan in full when you sell your new-build home or at the end of the mortgage period – whichever comes first. When you repay the government loan, do bear in mind that the amount you pay back will reflect the value of the house at the time you sell it; in other words, if the value of your home has increased between the time you bought it and sold it, the amount you pay back to the government will reflect that increase.

You can also pay back some of your equity loan without selling your home. You can pay back either 10% or 20% or the total amount, so long as the loan is worth at least 10% of the value of your home.

How does the scheme work in practice?

Imagine you’re buying a new-build property for £200,000. This is how you’d pay for it:

Source of money    Amount  Percentage
Your cash deposit    £10,000 5%
Government equity loan    £40,000 20%
Your mortgage    £150,000 75%

Total                                 £200,000

If you then sold the house for, say, £210,000:

  • You’d receive £168,000 (80%, from your mortgage and the cash deposit).

  • You’d pay back £42,000 on the loan (20% of the value of the property at the time of sale).

  • You’d need to pay off your mortgage with your share of the money.

 

Scheme 2 - the Help to Buy mortgage guarantee

Who can apply?

Potential homebuyers who fit the following criteria:

  • You’re a first-time home-buyer - or an existing home-owner looking to move up the housing ladder.

  • You’d like to buy your own newly-built home or a previously owned existing property.

  • You live in England (Wales and Scotland have their own schemes).

  • The home you want to buy costs no more than £600,000.

  • You’re seeking a mortgage to help you purchase your property.

 

What is the Help to Buy mortgage guarantee?

When you take out a mortgage, you can benefit from a greatly improved interest rate, so that you’re paying back less than you might otherwise have to.

This lower interest rate can be charged by a lender because the government will guarantee any mortgage borrowing above 80% of the property’s value years; this minimises risk for lenders.

How do I raise the rest of the purchase price?

You can provide a deposit as small as 5% of the purchase price of the property you’re buying.

However, you can also provide a deposit of anything up to 20% of the purchase price of the property you’re buying.

What are the conditions of the Help to Buy mortgage guarantee?

  • Your mortgage must be a repayment mortgage.

  • The guarantee on that mortgage lasts for seven years.

  • You won’t be able to sub-let your home if you use this scheme.

  • You can’t use the property as a second home.

How does the scheme work in practice?

Imagine you’re buying a property for £300,000. This is how you’d pay for it:

  • You pay the minimum deposit of 5% - that’s £15,000.

  • Your mortgage covers the remaining 95% of the purchase price – that’s £285,000.

  • The government guarantees 15% of that mortgage – that’s £45,000.

After 7 years the mortgage guarantee runs out, so you sell in year 8 for £450,000. You pay off the mortgage out of that sum, and use your remaining equity to contribute towards your next home.

 

Act now!

If you’re a home-owner planning to sell your existing property

With these two government schemes now in place, there’s going to be increased competition to buy properties, which means now is a very good time for you to sell. We can help you with that process – so please contact our Property Sales Team on: 020 7620 1500.

If you’re a home-buyer who wants to take advantage of the government’s Help to Buy schemes

With our vast portfolio of properties, we can help you choose the Galliard home that suits your needs and your budgets; plus we can guide you through the processes required to apply for either of the two schemes outlined above.

If you’re a landlord

Whilst property renting has enjoyed a boom period in recent years, these two schemes could lure many potential tenants towards property purchase – so if you want to ensure that your properties always have tenants, we can help you find the right people - so please contact our Lettings team on: 020 7620 1600.


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