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Help to Buy options demystified
Cartmell Shepherd’s property legal expert Linsey Hayes takes you through the pros and cons of the various Help to Buy options.
There are a number of government schemes set up to assist buyers in the purchase of their new home and in particular first time buyers. Although there are lots of advantages to these schemes, there are a number of drawbacks and buyers are advised to speak to a conveyancer with experience of the relevant scheme before exchanging contracts.
This article looks at three of these schemes: Help to Buy ISA’s, Help to Buy Equity Loans and Help to Buy Shared Ownership.
Help to Buy ISA’s
This is one of the most popular schemes and allows first time buyers to maximise any deposit they save. For every £1 saved, the Government will increase this by 25%. The maximum level of any government bonus is £3,000. Your conveyancer applies for the bonus when you have found a property to buy and are close to exchanging contracts.
- The scheme applies to each first time buyer not each property so if there are more than one first time buyer, each one can make use of the scheme.
- First time buyers can increase their deposit at any time if funds are available.
Disadvantages - There are not many!
- There are restrictions on how much you can save and you do need £1,600 as a minimum to claim the bonus.
Help to Buy shared Ownership
The aim of this scheme is to help buyers who don’t own their own property and who can’t afford to take a full mortgage against the property they want to buy. The scheme works by allowing buyers to buy a share of their home and then pay rent on the remaining share. In the future the buyer can buy more shares in the property.
- Allows buyers who might not otherwise be able to buy a property to get on the housing ladder.
- There are again a number of restrictions on who can apply.
- You will need to make sure you can afford to pay rent on the share of your home you don’t own as well as keep up any other payments due such as your mortgage.
- The value of the property might well increase over time so buying a share in the future could be more expensive than anticipated.
Help to Buy Equity Loan
This is again a popular scheme allowing buyers to purchase new build properties up to £600,000 in value with a loan from the government of 20% or less. Although you don’t pay anything on the loan for the first 5 years, you will then pay interest.
- You can buy a new build house with a deposit of only 5%.
- Most large developers are involved in the scheme.
- When you sell your home, you will need to pay back the share in your property to the Government. So if you buy a new build property for £200,000 and you took the full 20% loan to buy amounting to £40,000, when you sell in the future for say £240,000 you will pay back £48,000 plus charges.
- After the first 5 years you will have to pay the monthly admin charge as well as your mortgage payments.
- There are restrictions on what you can do to your property as the Government effectively owns a share of your property.
It can be a bit of a minefield but it is certainly worth looking at. Here at Cartmells we have a number of specialists experienced in dealing with these schemes – Mandy Shum in our Penrith office and Abby Parkinson who works in Carlisle and Brampton.
There are also different rules for properties bought in London and at Cartmells we have specialists who deal with properties in the Capital.
If you would like further information on any of the schemes or would like to talk to a specialist about some of the issues please telephone: 01228 516666 to speak to one of our conveyancers.