‘Generation rent’ are looking for a way out. Young couples are searching for an exit route away from their landlords, so that they can build a future and a family from their very own home. Unfortunately, it’s not as straightforward as it seems. Despite the fact that average earnings have risen over the last decade, they have no way matched the excessive rise in property prices. Therefore, saving for a deposit becomes exceedingly more difficult. One of the ways to help combat this issue, is the government's Help to Buy initiative.
The Help to Buy scheme has been running for a few years now, having been initiated in April 2013 (England). At similar times both Scotland and Wales introduced their versions of the scheme. One of the main differences being that the Scottish scheme only covered properties up to £400,000, whereas the England and Wales included properties up to the value of £600,000. Although the schemes in Scotland and Wales have now come to an end, George Osborne decide to prolong the scheme in England until 2021.
Basically, the help to buy scheme is a government led initiative which was introduced to lend a helping hand for those looking to buy their own home. The government has worked with the banks and mortgage lenders to be able to offer lower deposits and lower rates of interest for fixed periods of time, so more people can afford to take the leap.
One of the key incentives came from the government offering a 20% equity loan to buyers of newly-built properties called the Help to Buy: Equity Loan. To qualify, along with a 5% cash deposit, you will need to match the lender’s own criteria too. This method suits the government because, when the property is sold, they can reclaim the loan, and if the property value has gone up, they government can make a profit.
On the Help to Buy equity loans, you don’t have to pay any interest or fees for the first 5 years. Until the 6th year where you’ll pay 1.75% interest on your loan amount. Following on from this, the interest rate will rise by inflation based on the Retail Prices Index (RPI), plus an additional 1% each year. These fees do not contribute to paying off your government loan. Instead, when you've paid off the mortgage or come to sell your home, you have to repay the equity loan as well as a share of any increase in its value.
You can negotiate ways and means of paying off your loan at any time. You will have to speak to your lender about such possibilities. Some lenders allow you to pay back around 10% of the current market value of your home, if you’ve got the cash.
You will be rejected by the government if you already have a home. You cannot use this scheme to buy a second home or as a property to rent out. Choosing the Help to Buy scheme means that you can only take out a repayment mortgage. So, there's no option for an interest only mortgage, if that’s something you were considering. Other rejections will come down to lender’s and their assessment of each individual and their circumstances. If they deem you to be a risk, they are unlikely to offer you a deal.
There are several benefits to the Help to Buy scheme and multiple options available. Luckily, here at MortgageKey, we have the knowledge, experience and expertise to find the deal that suits you. We have excellent relationships with a panel of lenders and know who to go to, to acquire the type of Help to Buy mortgage you are looking for. Get in touch with us today about securing a Help to Buy mortgage.
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Representative Example: Annual Interest rate of 2.44% fixed for 2 Years followed by 3.59% for the remaining term. Representative 3.50% APRC Variable. Based on borrowing of 150,000 over 17 years repayments of £899 per month. Total amount repayable £198,466. Includes Lender Fee of £995 and Broker Fee of £695.