The term ‘Help to Buy’ is thrown about quite freely these days with regard to buying property. Politicians usually adorn it with praise, while others have been doubtful of its benefits for various reasons or another. But what is it, and what benefits and drawbacks will it give anyone looking to get on the property ladder?
What is It?
The Help to Buy scheme is a three-part scheme introduced by the government in early 2013 for first-time buyers. The three parts are Help to Buy: Shared ownership, Help to Buy: Equity loan and Help to Buy: ISA, and they are all limited to new build homes.
Help to Buy: Shared Ownership
When you can’t afford the 100% mortgage of your home, shared ownership allows you to buy a share between 25% – 75% of the home and then pay rent on the remaining share you don’t own.
- If you can afford to save money you can gradually pay to own a larger share of the house over time.
- You may be able to buy a bigger house than you would otherwise with this scheme.
- If you want to sell the home, and you do not own it outright, you are not able to choose who buys it.
- Without 100% ownership you cannot renovate or improve the home without permission from the housing association.
Help to Buy: Equity Loan
This scheme helps you get a deposit for a property. The Government will give you a loan of up to 20% of the cost of the house, which will mean you only have to pay a 5% deposit and get a 75% mortgage. The loan is also interest free for 5 years.
- You only need a small deposit to buy the home.
- It will be easy to get a mortgage for the rest of the home.
- Because of high London prices, the Government will now loan up to 40% for deposits.
- The Government owns 20% of the home, so if the property rises in value you have more to pay back.
- You will have to pay off the remaining value if you want to sell the home.
Help to Buy: ISA
With this savings account, the Government will give you an extra 25% tax-free bonus on top of what you’ve saved. This is capped at £12,000 but this would mean you receive a whopping £3000 to use for the mortgage deposit!
- If you’re saving with a partner, you can each have an account which means getting a total of £6000 towards your first home.
- If you open one, you’re able to get the bonus until December 2030.
- As it’s an ISA, the savings will tax free.
- The home you buy with the account must be less than £250,000 and less than £450,000 in London.
- Unfortunately you cannot use the bonus towards the exchange deposit.
- There is a minimum amount you can add to the account per month, so saving the full £12,000 will take at least four years.