First Time Buyers
The financial pressures on First Time Buyers has ramped up significantly over the last decade, with rising House and Apartment prices, increasing rents, and a general shortage of available properties. This has meant that First Time Buyers need all the help and advice they can get to take their first steps onto the property ladder. One source of help are the numerous Government schemes which have been launched to encourage First Time Buyers to take that step. These schemes fall into four main categories as outlined below, however every budget or autumn statement appears to increase the options or change the criteria so a careful study of the Government websites is recommended. The information is readily available at the Affordable Homes section of the Goverment website.
1/ Help to Buy
2/ Shared Ownership
3/ Right to Buy ( or acquire)
4/ Starter Homes
Looking at them more closely
1/ Help to Buy
These government support schemes are very much aimed at assisting the First Time Buyer. To ensure they are given to the buyers who need help the Government has certain criteria that apply in general to all of their Help to Buy schemes.
- The property must not be a buy to let or second home.
- You must not rent it out post purchase
- It must have a maximum purchase price of less than £600,000
- You can only use one of the Government assisted schemes on any one property transaction and not a combination of them.
ISAs in which the Government offers savers either tax relief or a bonus are a great way for First Time Buyers to put their deposit together, or to cover some of their purchase costs. A number of ISA schemes exist and here we cover those most applicable to First Time Buyers.
Help to Buy ISA
In this for every £200 a buyer saves the Government will add £50, up to a maximum of providing a £3000 bonus to potential buyers who save £12,000 in this ISA. The bonus is paid directly to your mortgage lender when you complete your property transaction. This is really aimed at First Time Buyers and so the property value cap is set at £250,000 outside of London and £450,000 in London.
You also cannot hold a normal ISA while you have a Help to Buy ISA so it is a straight choice.
Lenders offer a variety of interest rates on their help to Buy ISAs and so it is worth shopping around for the deal that is best for you.
This ISA is intended to help those saving towards buying a property or those saving for retirement.
They become available from April 2017, and apply to anyone aged 40 or under. In essence it offers a tax free boost to your savings of up to £1000 per year. You can save up to £4000 per year into this ISA and then the Government will pay a bonus of 25% of your savings into the account at the end of the tax year. You can then use the cash held in the ISA as a deposit on any property up to £450,000 in value and you can roll up your Help to Buy ISA into a Lifetime ISA if you already hold one without losing out on the tax free benefits.
This assistance to First time buyers is now being withdrawn at the end of 2016, as the Government believes that private mortgages are now available on favorable terms with low deposits.
The higher a deposit a buyer puts on a property normally the lower the interest payments they are charged by a lender for the mortgage on the property. Recognizing the problems that rising property prices have caused the Government introduced this scheme to reduce the impact of lower deposits on repayments.
This scheme runs until 31st December 2016, at which stage you must have completed your property transaction. Simply if you can put together a 5% deposit on a property then the government will guarantee your mortgage to the lender. In this way the lender can offer lower rates of interest to you to lower the mortgage repayments. This deal is available to both New Builds and existing Homes. Most of the major lenders participate in this scheme and a number of them have also introduced schemes in which the mortgage guarantee can be provided by others eg parents as opposed to the Government. Like any normal mortgage though you will still need to be able to qualify for the mortgage amount and all the potential risks of failing to meet your repayments are the same. If you ever face a problem with repayments then speak to your lender as soon as possible as they will help you to find ways to reach the right repayment plan, they really do not wish to repossess homes and treat this as a last resort.
This Help to Buy scheme is offered in England and Wales. In essence if the buyer finds a 5% deposit, they can take an interest free loan of up to 20% of the purchase value from the Government. The remaining 75% must be obtained through a normal mortgage. Again the intention is those buyers who use this scheme would be offered an improved interest rate compared to those who take a 95% mortgage, although it is always wise to shop around to find the best interest rate deal as they vary widely.
The Government loan remains interest free for the first 5 years and then a loan fee of 1.75% is charged in the 6th year. The rate increases every year at the RPI inflation rate + 1%. The loan is not repaid until the house is sold, or the normal mortgage term finishes. At that point the Government takes back its 20% share of the current value of the house. You can repay the loan during the first 25 years at any time however only in 10% increments of the properties market value.
The Help to Buy Equity Loan scheme is available in England until 2020, and in Wales until 2021, they are however only available on New Build Homes.
In London due to the tremendous rise in house prices, the 5 year interest free Help to Buy loan can be worth up to 40% of the value of the Home.
In these schemes you buy a share in the property ranging from ¼ up to 3/4s of the homes full value, and the landlord, normally a council or housing association retain the rest. You then pay a reduced rent to the landlord for the proportion of the property’s value they have retained. The buyer can then over time buy further shares in the property. The eligibility restrictions on this scheme which applies to England vary according to whether you live inside or outside London. Again local councils and government websites can provide more details about the scheme and the eligibility criteria.
The cap on Income criteria is being lifted so that you can qualify for the scheme with an income of £80,000 pa outside London and £90,000 pa in London.
3/ Right to Buy
Tenants in England and Wales who rent their home from their local council, and who qualify to buy their home at a discount. The size of discount offered to the tenant varies according to the area and property type. Normally tenants will have had to been renting from their local council for at least 3 years to qualify. These discounts are being extended in England to some Housing Associations tenants in some areas during 2016. The Government has announced that a further 135,0000 homes will be built under a Help to Buy Shared Ownership scheme, as well For more information see the right to buy website.
4/ Starter Homes
This is a bit of a lottery as it does depend on where you live, however the Government has committed to supporting the building of 200,000 new homes which will be sold at a 20% discount as a minimum to First Time Buyers.