Help-to-Buy Changes will benefit Homebuyers

Mon 30 Nov 2015 by Tony Lilleystone

Written by Tony Lilleystone

Homebuyers will benefit from changes to Help-to-Buy in Autumn Budget

Many more first-time buyers will be able to buy a home of their own thanks to changes on the government Help-to-Buy scheme announced today in the Chancellor's Autumn Statement. Some of the changes will also help existing homeowners who need to move home.

The major changes are:

  • Current restrictions on who can buy a home through shared ownership will be removed from April 2016
  • The existing Equity Loan scheme will be extended until 2021
  • If you live in London the government will lend you 40% the price of your home from 2016
  • First-time buyers will be able to get a 20% discount on 200,000 new Starter Homes
  • Housing Association tenants will be able to buy their homes, with the first sales in 2016
  • Other parts of the Help-to-Buy scheme, such as the mortgage guarantee scheme, will continue to benefit homebuyers

Extension of shared ownership scheme

Shared ownership allows people to buy a share of a home – rather than the whole house – and then buy a greater share over time as they can afford to. They pay rent on the rest of the property. The present limits on Help-to-Buy Shared Ownership are being lifted. Anyone who has a household income of less than £80,000 outside London, and £90,000 inside London, will be able to buy a home through shared ownership. The scheme will apply across England.

People can buy a share between 25% and 75% of a home. The remaining share of the property is retained by a housing association, but buyers can elect to purchase this share later on, either in one go or in specified tranches. This process is known as 'staircasing'. Rent has to be paid on the outstanding share but the rent won’t be more than 3% of the amount left.

For example, if on a house worth £227,000 where the buyer has bought a 40% share, the rent won’t be more than 3% of the remaining 60% - in this case £4,000 a year, or £340 a month. Buyers do not have to fund the whole of their share themselves, and mortgages can be obtained from many high-street lenders to purchase shared ownership homes.

Equity loan scheme extended to 2021

Help-to-Buy equity loans are already open to both first-time buyers and home movers on new build homes in England with a purchase price up to £600,000. The Chancellor is now extending the Equity Loan scheme up to 2021.

Currently, if you’re able to pay at least 5% the value of your home as a deposit, the government will lend you up to 20% of the rest of the value of the property, alongside your mortgage of up to 75%. No interest or fees are is charged on equity loans for the first five years of owning your home. If you sell your home the amount which has to be repaid will depend upon the home's value at the time of sale, so you may have to repay more than the amount originally borrowed.

Londoners will be able to borrow up to 40% on Equity loans

To reflect the current property market in London, from early 2016 the government will increase the upper limit for the equity loan it gives new buyers within Greater London from 20% to 40%.

With London Help to Buy equity loan:

  • you’ll need to contribute at least 5% of the property price as a deposit
  • the government will give you a loan for up to 40% of the price
  • you’ll need a mortgage of up to 55% to cover the rest

20% discount for first-time buyers on 200,000 new Starter Homes

Starter Homes are new build homes available at 20% off the market price. They are only open to first-time buyers under 40. £2.3 billion will be spent on building 200,000 Starter Homes over the next five years. This money will be given to house builders to provide a 20% discount on new homes.

Right to Buy being extended to Housing Association tenants

At present council tenants have the right to buy the homes they are renting, usually at a discount depending on how long they have lived there. Right to Buy will now be extended to housing association tenants during 2016, giving over one million households the chance to become home owners.
Higher stamp duty to be paid on second homes and buy-to-let properties The Chancellor says he will use money raised from tax on people buying their second home to help those struggling to buy their first home. From 1 April 2016 people purchasing additional properties such as buy to let properties
and second homes will pay an extra 3% in stamp duty.

Get proper legal advice

The present government is clearly committed to the goal of more home ownership. People who have not previously been able to afford a home will now be able to buy one. Buyers will usually need to contact a housing association to find out if they qualify under one of the Help-to-Buy schemes. These housing associations can give a lot of advice but buyers should still contact an independent solicitor once they have been approved.

The operation of the various schemes can be quite complicated – for instance if you buy under the shared ownership scheme you may face restrictions if you want to sell the property – so you should understand exactly what you are letting yourself in for before going ahead.

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