There are multiple Government schemes that are designed to help people buy their first house or just move out of home. This guide will give a quick overview of the mainbigger ones so you can see if they could be right for you.
Mortgage Guarantee Scheme
The mortgage guarantee scheme increases the availability and affordability of 95% loan-to-value mortgages. This essentially means that it will be easier for people with smaller deposits to get a mortgage.
It works by offering lenders the chance to buy a guarantee for mortgages where the borrower only has a 5% deposit. This provides the lender with additional security, and so makes the loan less risky for them. The government guarantees the portion of the loan that is over 80% of the property’s value. So, if it is a 95% LTV mortgage, the government guarantees 15% of it. So, if the borrower can’t pay, then the lender will receive 15% from the government.
This scheme has been designed to give lenders the confidence to lend to people with smaller deposits. This should lead to more people being able to buy their own home.
In order to be eligible for the mortgage guarantee scheme, you have to fulfil a few requirements. First of all, the property you are buying must be for you to live in yourself. You are not allowed to then rent the property out once you have bought it. You also have to be applying for a repayment mortgage, which means you repay the loan over the term of the mortgage. Finally, you must be providing a deposit of between 5% to 9% of the property value.
Fortunately, for this scheme both new builds and older homes are eligible. However, there is a price cap of up to £600,000.
Government Help to Buy: Equity Loan
The equity loan help to buy scheme provides successful applicants with a government funded loan that increases the size of their deposits. So, if you have a 5% deposit, you could borrow 20% more to put towards your deposit. This would leave you with a 25% deposit, which may allow you to get much better mortgage offers. In London, you are able to borrow up to 40% of the value of the property.
There are a few criteria you need to fill before you can apply for the equity loan. First of all, you need to be a first time buyer. Secondly, you must be able to provide at least a 5% deposit. Thirdly, the property must be a new build home that is built by a registered provider of new builds. Fourthly, the price of the property cannot exceed the maximum property price for each area, which varies around the country. For example, the most expensive cap is London, at £600,000. The lowest price cap is the North East, at £186,100.
Once you have the loan, the first five years are interest free. This means that for the first five years, all you have to pay is the £1 monthly management fee. Once the five years are over, you then have to pay interest. This means that the amount you have to pay back will be more than you borrow.
You will have to repay the equity loan, but ultimately the money you could save by having a larger deposit should offset any extra costs. It’s worth bearing in mind that the amount you pay back on the equity loan fluctuates with the value of the house. So, if the house value rises 20%, the equity loan value rises 20%. The same happens if the value of the house decreases.
Private Help to Buy : Equity Loan
There are some limitations to the Government Help to Buy scheme; mainly that you can only buy newly built property and there may be more restrictions around affordability.
Recently a number of private schemes have launched which overcome these issues. However there are other factors which can make them less attractive than the Government scheme. If you are thinking of buying property, speak to a broker who has access to these private schemes
Right to Buy
Right to buy is a scheme that helps tenants who live in council houses to buy the property. There are multiple benefits to buying a property through this scheme. First of all, it’s possible to get a massive discount on the purchase of the property. This discount depends on how long you have lived at the property, but in London it can be up to £108,000. Secondly, you are able to use the discount that you get as a deposit for the property. This means you could have a much larger deposit, and so would be seen as less of a risk for lenders. In some cases, this could lead to you being offered more favourable terms or buying without having to put any cash down yourself.
However, there are some criteria you have to fill to be considered for the right to buy scheme. First of all, you must have lived in the council house for at least three years. Secondly, it must be a self-contained property. This means that you can’t share facilities such as bathrooms and kitchens with other households. Thirdly, there must be a legal contract between yourself and the landlord.
Shared ownership is a scheme where you buy a smaller portion of the property, and pay rent on the remaining portion. You can buy between 10% to 75% of the property, but it is normally done in 25% blocks. This allows you to live in the entire property even if you cannot afford to buy all of it. This can be good for potential homeowners as you would need a smaller deposit. For example, if you have £10,000 and are trying to buy a £200,000 house, this is only a 5% deposit. So, if you use the shared ownership scheme to buy 50% of the property, your £10,000 deposit is for £100,000, which is a 10% deposit. This should allow you to get more favourable mortgage terms while still living in the whole property.
Once you have moved into the property, it is possible to increase your shares in the house. This is called staircasing, and it is now possible to staircase in as little as 1% instalments. As you can staircase in smaller steps, this makes it more accessible to those who are unable to save for a big 10% increase.
However, it’s worth remembering that you will pay rent on the portion of the house that you don’t own. While shared ownership could save you money in the short term, over a longer period of time the cost of rent could greatly increase the overall cost. Make sure you check which scheme would work best for you, and do plenty of research.
This scheme reduces the amount you pay for a property by at least 30% of the market price. So, to get full ownership of the property you may only have to pay 70% of the total cost of the house. This 30% can be a massive saving, requiring smaller deposits and smaller mortgages. In some areas, it’s possible to get up to a 50% discount off the market price.
To be eligible for the first homes scheme you must be a first time buyer, and not have household earnings over £80,000, or £90,000 in London. There are also price caps. The after-discount maximum price of a property is £250,000, or £420,000 in London. However, local authorities can make the price cap lower. Additionally, the property should be the buyer’s only one, and the mortgage has to be at least 50% of the purchase price of the property.
Once you buy the property, the discount you received on it stays with the property for life. This means that if you buy the property at a 30% discount, you will then sell the property at a 30% discount. At the time of writing, there is no way to buy out that discount, as it is intended to help future first time buyers too.
There are many different schemes the government has set up to help people buy their first home. But, the right one for your circumstances can only be decided by you. If you are still unsure about which scheme would suit you, go to the Own Your Home website to learn more. You can also get in touch with a Help to Buy agent who can help you make a decision too.
Promise Money is a broker not a lender. Therefore we offer lenders representing the whole of market for mortgages, secured loans, bridging finance, commercial mortgages and development finance. These loans are secured on property and subject to the borrowers status.
More than 50% of borrowers receive offers better than our representative examples
The %APR rate you will be offered is dependent on your personal circumstances.
Mortgages and Remortgages
Borrow £270,000 over 300 months at 7.1% APRC representative at a fixed rate of 4.79% for 60 months at £1,539.39 per month and thereafter 240 instalments of £2050.55 at 8.49% or the lender’s current variable rate at the time. The total charge for credit is £317,807.66 which includes £2,500 advice / processing fees and £125 application fee. Total repayable £587,807.66
Secured / Second Charge Loans
Borrow £62,000 over 180 months at 9.9% APRC representative at a fixed rate of 7.85% for 60 months at £622.09 per month and thereafter 120 instalments of £667.54 at 9.49% or the lender’s current variable rate at the time. The total charge for credit is £55,730.20 which includes £2,660 advice / processing fees and £125 application fee. Total repayable £117,730.20
Annual Interest Rate (fixed) is 49.7% p.a. with a Representative 49.7% APR, based on borrowing £5,000 and repaying this over 36 monthly repayments. Monthly repayment is £243.57 with a total amount repayable of £8,768.52 which includes the total interest repayable of £3,768.52.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME
REPAYING YOUR DEBTS OVER A LONGER PERIOD CAN REDUCE YOUR PAYMENTS BUT COULD INCREASE THE TOTAL INTEREST YOU PAY. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
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Authorised and regulated by the Financial Conduct Authority – Number 681423The Financial Conduct Authority does not regulate some forms of commercial / buy-to-let mortgages
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