Help to Buy Mortgages

Help to Buy Mortgages

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Help to Buy mortgages incorporated four separate schemes when they were announced in the 2013 budget, intended by the government to help first time buyers and home movers afford to buy new homes in the current economic climate and housing market. The four initiatives that made up Help to Buy were equity loans, shared ownership, NewBuy and the mortgage guarantee.

HELP TO BUY EQUITY LOANS

Help to Buy equity loans are only available in England, although similar schemes have been made available by the Scottish Government, the Welsh Government and the Northern Ireland Housing Executive. Equity loans are open to people who want to buy a new-build property, and who have a 5% deposit available. The government will top up your deposit with an equity loan of up to 20% of the property value (maximum £120,000) – in this case, you would take out a 75% mortgage from a lender to buy the property. For buyers in London only, the maximum equity loan is 40% of the property value, up to £240,000. The maximum full purchase price is £600,000 in both London and the rest of England. We will go over all your options with free help to buy mortgage advice in Wiltshire.

When everything is up and running you will make monthly payments to the mortgage lender as normal, but when it comes to the equity loan no interest is charged or regular repayments required – other than a £1 monthly management fee collected by Direct Debit – for the first five years. After five years, an interest rate of 1.75% is charged; in subsequent years, the interest fee increases by inflation (measured as the percentage increase in the retail price index) plus 1%. You can either repay the loan in stages (in minimum 10% increments) at any time or pay it off when you sell the property; the maximum repayment term for the Governments equity loan element is 25 years.

It is important to be aware that when you repay an equity loan, the repayment amount is based on the value of your property at that time, not the original loan amount. For example, let’s say you were buying a property for £200,000. You have a £10,000 deposit (5%), take out an equity loan for £40,000 (20%) and take a mortgage for £150,000 (75%) to complete the purchase. If you sell the property in 10 years’ time and the value has risen to £300,000, then you would need to repay £60,000 (20% of the property’s sale value) to the equity loan. Your share of the sale proceeds would be £240,000 (80% of the sale value) from which you would repay any outstanding mortgage balance.

HOW DO I GET A HELP TO BUY MORTGAGE?

The Help to Buy scheme was introduced by the government in 2013 and since this time has helped thousands of people realise the reality of owning their own home, however, where do you start in regard to getting a Help to Buy mortgage. We have experts who provide free help to buy mortgage advice in Wiltshire and nationwide.

Firstly, not all lenders participate in the help to buy scheme, so you need to find out who does, and those that are involved offer specific products outside their usual mortgage schemes. As with all residential mortgages, the amount you need to borrow has to be assessed as affordable by the lender but for a help to buy mortgage, this also needs to be checked by the help to Buy agent. Usually, applying for a mortgage for a help to buy purchase is the same as any other. However, you need to ensure that both parties have agreed on the loan amount based on affordability. A good broker will assist you on your journey, offering free help to buy mortgage advice and also offer to complete the help to buy agents application with you.

DO I QUALIFY FOR HELP TO BUY?

If you are interested in the Government’s Help to Buy scheme, you’ll need to check (and meet) the eligibility criteria:

  • Available to First Time Buyers and Homeowners looking to move
  • The property being purchased must be a new build worth £600,000 or less
  • Subletting and property exchange are not allowed
  • Your new home must be the only property you own
  • The scheme is available in England only. Scotland, Wales and Northern Ireland run their own similar schemes
  • You will need a minimum 5% cash deposit

Although the criteria remain the same for those looking to purchase in London, due to the current property prices in Greater London the upper limit for the equity loan in this area has been increased from 20% to 40%. This covers the basics but do ensure you get all the required information in relation to how the scheme works before making a commitment. More information is available on the Government Help to Buy website and, of course, we at Ideal Home Loans are available to help you navigate your way through the scheme with free help to buy mortgage advice in Westbury, Wiltshire and nationwide.

WHAT IS THE HELP TO BUY MORTGAGE PROCESS?

The Governments Help to Buy scheme could help you purchase your new home as a first-time buyer or as a home mover needing to move on to their next property. So, what is the Help to Buy process and where do you start?
Check your eligibility first. The scheme is fairly basic in its criteria but do ensure you meet the minimum requirements first. These can be found on our site or from the Government’s Help to Buy website.

If you are happy that you meet the basic eligibility requirements, you will now need to check on your budget. This will, in the most part, be determined by the amount of mortgage you can obtain albeit there is a maximum purchase price that applies of £600,000. In addition to checking how much you can borrow from a lender, you will also need to have this checked by the help to buy agent for your area who can offer free help to buy mortgage advice.

AFFORDABLE HOMEOWNERSHIP SCHEMES

Although equity loans and shared ownership are the only schemes currently branded under the Help to Buy an umbrella, there are. Others including:

  • Starter Homes – At the time of writing this scheme has not yet properly launched, but you can register your interest for more information. Starter Homes is designed to allow first-time buyers under 40 to buy a new-build property at just 80% of the market value. The maximum cost of a home offered via the Starter Homes scheme will be £250,000 outside London, and £450,000 in London.
  • Social HomeBuy – This is similar to the Help to Buy shared ownership scheme and is offered by some (not all) local authorities and housing associations. This scheme gives those who have been in social housing for at least five years the opportunity to purchase a share (a minimum of 25%) of the property. You get a discounted price (between £9,000 and £16,000) on the share of the property that you purchase and pay subsidised rent on the rest.

HELP TO BUY MORTGAGE RATES

When looking into your Help to Buy mortgage you will discover that not all lenders participate in the scheme. Those that do will also offer a specific portfolio of rates that will differ to that of their standard mortgages. The good news, however, is that typically the rate you will be offered will be priced not solely on the cash deposit you have to put down (usually the minimum 5%) but also inclusive of the equity loan. The lower the loan to value, commonly referred to as LTV, the lower the interest rate and as such help to buy mortgage rates are much more in keeping with those who have a 25% deposit to put down.

In general terms, the rates offered for help to buy mortgages are priced in the same way as a standard mortgage.

You will usually be offered a selection of products with some attracting fees that will be higher than others and some offering perks like a cashback sum or including a free property valuation. It’s important to be aware of the advantages & disadvantages of any product before you commit and Ideal Home Loans will be happy to help you with free help to buy mortgage advice in Westbury, Wiltshire.

SHARED OWNERSHIP

Shared ownership schemes have existed in various forms for years, and under the current Help to Buy scheme are available to first time buyers, people who used to own a home but cannot afford to buy one now, or who are an existing shared owner looking to move. If you have a household income of under £80,000 a year (or £90,000 in London) shared ownership allows you to take out a mortgage to buy a percentage of the property (typically between 25% and 75%) and pay rent to the housing association for the remaining portion of the property, which they own.

The Help to Buy shared ownership scheme can be used to purchase either designated newly built or existing properties.
Similar shared ownership schemes are available in Scotland, Wales and Northern Ireland. Alternative schemes are also available for people over 55 (Older People’s Shared Ownership) and those who are recognised as having long-term disabilities (HOLD – Home Ownership for People with Long-Term Disabilities).

NEWBUY & HELP TO BUY MORTGAGE GUARANTEE

NewBuy, although now ended, sought to make 5% deposit mortgages from approved lenders available to home movers and first-time buyers. This scheme was intended for those looking to purchase newly built or developed properties priced under £500,000 from a range of specific UK housebuilders.

The mortgage guarantee scheme, also now ended, was also designed to make 5% deposit mortgages more widely available to home buyers. In this case, the “guarantee” was between the government and the lenders, reducing the lender’s exposure to risk and allowing higher lending thresholds. Both new-build and older properties valued under £600,000 were eligible.
Even though NewBuy and the mortgage guarantee schemes have now ended, this does not mean that those looking for a 5% deposit mortgage (or in other words, a loan-to-value or LTV of 95%) are out of options. Due to changes in market conditions, there are now more lenders able to provide higher LTV mortgages, enabling first time buyers and those with a lower deposit to get on the housing ladder.

BUYING A HELP TO BUY NEW BUILD

There can be many advantages in purchasing a newly built property over an older home; a modern property with brand-new fixtures and fittings, often much more energy-efficient than older houses, and usually with smoke and burglar alarms fitted.
Add to this the avoidance of the dreaded “property chain”, and the sometimes generous incentives offered by property developers, and it can be an attractive proposition.

The currently available Help to Buy schemes – equity loans and shared ownership are designed to help homebuyers save up for a deposit – make it easier than it has been in years to purchase a modern, newly built home. Also check out the section below for details of another scheme designed to help buy a new property: Starter Homes.

HELP TO BUY WITH POOR CREDIT

Recent changes to the Help to Buy scheme have made it more accessible to customers with a less than perfect credit history.
People can now be accepted for Help to Buy mortgages if:

  • They are one year discharged from a bankruptcy
  • They have a current IVA
  • They have no mortgage arrears in the past 12 months (previous arrears are accepted)
  • In such cases, customers will need to put down a 10% deposit on the property they are looking to buy, rather than the typical 5%.

HELP TO BUY MORTGAGE LENDERS

Finding the right mortgage can seem a daunting exercise at the best of times however, this can be even more so when you are looking to purchase your home using the Government’s Help to Buy scheme. Not all lenders participate in the scheme and with each also having their own individual criteria in how they assess you as an applicant, the job of securing the right mortgage can still feel like working through a minefield. Our expert Help to Buy mortgage advisers are fully qualified and will know where to look in regard to lenders that are applicable to your individual circumstances and offer you guidance right the way through the whole process including assistance with your help to buy application where needed. Get in contact with us today to discover which Help to Buy mortgage lenders may be available to you. Our free help to buy mortgage scheme advice is available nationwide from our base in Westbury, Wiltshire.

HELP TO BUY MORTGAGE BROKER

The various Help to Buy schemes have, and will continue to, provide a step forward in promoting affordable homeownership. However, to ensure you find the scheme or mortgage which presents the best option for you, speak to one of our expert mortgage brokers today and get free help to buy mortgage advice.

At Ideal Home Loans we specialise in Help to Buy and similar schemes and have helped many homeowners get on the property ladder. We can provide expert, impartial free help to buy mortgage advice on home-mover and first-time buyer mortgages and remortgages.