If you’re part of Generation Y, you’ll know that raising finances to get on the property ladder is tough. If your parents are unable to help contribute to the deposit, you are often locked in to staying living with your mum and dad until the funds are raised.
However, a new initiative introduced by the coalition government in April 2013 has started to put a stop to this. So Let’s check it out What a professional estate Agent has to say regarding this.
What is it?
The Help to Buy Scheme was devised to assist people who didn’t have a large deposit, but were able to afford monthly mortgage payments. If the buyer was purchasing a new build, they would only need to stump up a minimum five per cent deposit. The remaining money would come from a mortgage and the Help to Buy loan.
Borrowers are able to apply for up to twenty per cent of the cost of the property through this government loan.
What sort of homes can be purchased?
The Help to Buy loan scheme is split into two options, Equity Loan and Mortgage Guarantee. Equity Loan can only be used to purchase new builds up to the value of £600,000. There are no restrictions on income, so any earner can apply for the loan. You also don’t have to be a first time buyer, making it ideal for those looking to upgrade their property.
However, you cannot use the loan to buy a second home or to purchase a property you plan to rent out.
If you want to purchase a home which is not a new build, you can opt for the Mortgage Guarantee scheme (an alternative option from Help to Buy). The part allows you to purchase a property under £600,000 with a minimum five per cent deposit. It does not offer an interest free loan as part of the package.
How does it work?
If you have chosen a new build house which costs £200,000, you would need a minimum deposit of £10,000. The maximum Help to Buy loan you would be entitled to would be £40,000. You would then just need a mortgage of £150,000.
The Help to Buy loan is an equity loan. For the first five years, you don’t pay any interest, but in year six, you will be charged 1.75 per cent of the value of the loan. In the following years, the fee will rise in line with the retail prices index, plus one per cent. You can pay back the loan at any time.
How successful has it been?
There have been mixed reports on the success of the scheme. House registrations have gone up by sixty per cent since last year, with Housing Minister Brandon Lewis claiming this is the highest total registrations since records began.
However, the opposition has claimed that the scheme has not been as successful in London. In twenty parliamentary constituencies, including Shoreditch, Tottenham and Tooting, not one person has been successful in their application.
In twelve further consistencies, only five people have had their Help to Buy applications approved.
The Help to Buy loan really is a good option if you feel priced out of the housing market. The fact that you don’t need to pay interest on the loan amount for the first five years also makes it very appealing.
However, it’s important to consult an independent mortgage advisor and take a hard look at your finances to ensure you can make the repayments. You don’t want your new home to be at risk should you not be able to pay your mortgage bill.