In our third and final blog with mortgage expert, Rob Starr, we’re looking at help to buy mortgages and the shared ownership scheme. In the rest of our ‘What you need to know’ series, we cover equity release mortgages and we delve deeper into the different types of mortgages available.
If you’re looking to set foot on the property ladder the Government’s Help to Buy scheme or Shared Ownership scheme could be for you so carry on reading and find out what you need to know.
Help to Buy Mortgages
The Government understands how hard it can be for first time buyers to scrape a deposit together to buy a home and these schemes were launched to try to give you a helping hand.
The Help to Buy scheme means that the Government lends first time buyers money to buy a newly-built home. It has to be a new build and it has to be a development that has applied to take part in this scheme. This does limit the properties available, but nonetheless it does open up possibilities for first time buyers. The purchase price of the property cannot be more than £600,000. To see if there are any eligible homes across Sussex, take a look here.
Under this scheme, you can borrow from the Government 20% of the purchase price interest-free for the first five years as long as you have at least a 5% deposit yourself. If you live in London, you can borrow up to 40% of the purchase price. When you repay the capital to the Government you repay the same percentage but based on the value of the property (or the sale price) at the time.
In effect you are getting an interest-free loan from the Government which will enable you to buy a property that otherwise you may not be able to afford.
> You still need at least 5% of the sale price of your new-build flat or house as a deposit.
> The government lends you up to 20%, or 40% if you live in London, of the sale price.
> You borrow the rest (up to 75%, or 55% if you live in London) from a mortgage lender, on a repayment basis.
> The Government portion of the loan must be repaid after 25 years, or earlier if you sell your home.
Whilst this is an interest free loan you must repay the same percentage of the proceeds of the sale as the initial government loan. This means that for example if you received a government loan for 20% of the original purchase price of your home, you must repay 20% of the proceeds of the future sale or 20% of the value of the home in 25 years’ time if you don’t sell.
This scheme does have an end date though. The Government has confirmed it will extend this scheme from 2021 to 2023. From 2021, there will also be new regional price caps which could reduce the maximum value of homes that can be bought through the Help to Buy Scheme.
Shared Ownership is another Government-backed initiative, which could also be your stepping stone onto the property ladder.
The Shared Ownership scheme means that the local household association actually co-purchases and the co-owns the property with you. This scheme was introduced to assist lower income households and first time buyers in purchasing a property. You are not restricted under this scheme to a new build property which is a good alternative to the Help to Buy scheme.
In effect, you take out a mortgage in the usual way, but just for the percentage share you own in the property. You buy as much of the property as you can afford, usually at least 25% and up to a maximum of 75%, and you pay subsidised rent to the housing association on the share that you don’t own.
Even if you only purchase a small share in the property, you live in your home as if you own it outright. And the great thing about Shared Ownership is that you can buy a larger share of the property whenever you can afford it by just increasing your mortgage or using savings. Then the more you own, the less rent you pay.
Should you decide to sell your property, you would use the sale to repay your mortgage and the balance is split with the housing association according to the percentage you own, and they own.