Since the former Chancellor’s pre-budget announcement that the Help to Buy new home scheme is being extended until 2020, the number of people taking advantage of the scheme has risen.
The current scheme was due to finish in March 2016 (or earlier if available funding was taken up), but George Osborne said back in 2014 that the scheme would be extended until 2020.
Statistics from gov.uk show that the 2016 completion figures for the first and second quarter were significantly higher than the same periods in 2015 (2015 Q1: 4,929 vs 2016: 6,805 and 2015 Q2: 9,356 vs 2016: 10,721). This is an increase of 23 percent, meaning the Help to Buy scheme is still as relevant as it was back in 2014.
At that point the government was confident the scheme would continue to help boost the housebuilding industry, and despite the Brexit confusion that rocked the housing market in June, it seems they were right – Help to Buy is still growing in popularity.
Help to Buy equity loans available to anyone
The Help to Buy equity loan scheme is currently available to anyone (not just first-time buyers) buying a new home from a registered builder or developer.
As long as you can find a deposit of at least 5 percent of the price of your new home, you’ll only need to secure up to a 75 percent mortgage from a bank or building society.
The government will then provide a loan for the remainder of the price, up to 20 percent of the total price. And you won’t have to pay any interest or fees on the loan for the first five years.
Here’s an example of how it works:
|Total Purchase Price||£200,000|
|First mortgage from bank or building society||75%||£150,000|
|Help to Buy equity loan for balance||20%||£40,000|
You don’t just have to be a first-time buyer to get a Help to Buy loan, but if you already own a home, you will have to sell it at the same time as you complete your purchase. And you will have to be living in the home you are buying.
It’s available on homes costing up to £600,000 in England and £300,000 in Wales.
The scheme is available on any type of newly built property, which also includes flats that have been newly created in the conversion of an existing building.
An experienced solicitor is essential when buying a new property
When buying a new home under this Help to Buy scheme, it helps to have an experienced solicitor to handle the conveyancing work. It is essential for all the legal documents submitted by the builder’s solicitors to be thoroughly scrutinised to ensure there are no objectionable provisions in them.
It is also vital that the title will be acceptable to any lender and can be properly registered after completion so as to avoid any problems on a subsequent sale.
All the solicitors we work with at Homeward Legal are required to perform to our own high standards as well as those of the Law Society’s Conveyancing Quality Scheme. This guarantees you will get the highest standards of service from independent solicitors who are familiar with these Help to Buy loans and will be able to explain them to you in full detail.
Get a quick quote from our expert solicitors today and we’ll happily explain the Help to Buy Scheme further for you.
The advantages of an equity loan
The equity loan is quite different to a normal mortgage. One major advantage is that you won’t have to make any monthly repayments of the loan nor will you have to pay any fees for the first five years.
In the sixth year, you’ll be charged a fee of 1.75 percent of the loan’s value. The fee will then increase every subsequent year. The increase will be worked out by using the retail price index plus 1 percent.
Your Help to Buy agent will contact you before the fees start to set up monthly payments with your bank. You’ll also be sent a statement about your loan each year.
The amount you pay in these fees doesn’t count towards paying back the equity loan. But you can make repayments to reduce the total owing, as detailed below.
What happens when you want to sell
With the equity loan scheme you buy the whole of the property in your own names, so you can sell the property whenever you want. When you sell, you will have to repay the equity loan in the same way as for any other mortgage. The same applies if you decide to remortgage a Help to Buy property. More details are available here.
But the amount you will have to repay will depend upon the price you sell for. If the value of your home has gone up or down, then the amount repayable will increase or decrease by the same proportion.
Say you buy for £200,000 with a 20 percent equity loan of £40,000. If you then sold for £210,000, a 5 percent increase, the amount repayable on the loan would also increase by 5 percent to £42,000. But if you made a 5 percent loss when you sold, the amount required to repay the loan would drop to £38,000.
If you want to, you can make early repayments on the loan. The amounts have to be either 10 percent or 20 percent of the total amount due at the time a repayment is made. This will also increase or decrease in line with the value of the property. If you wanted to make such a repayment, you should contact the Help to Buy agent so the exact amount could be ascertained.
If the equity loan scheme is not for you or you would prefer to buy an existing home, the Help to Buy mortgage guarantee scheme is also available and can help you get a mortgage of up to 95 percent.
When buying a new home under the Help to Buy scheme, you will need to take into account the various fees you will have to pay including your legal costs, as well as any Stamp Duty that may be payable.
Despite the uncertainty earlier this year, the housing market seems to be balancing out, and the Help to Buy scheme is still available and growing in popularity.
2020 isn’t far off and who knows what the new chancellor will decide when the next budget comes – so if you’re a first-time buyer looking to get on the housing ladder with a 5 percent deposit, better snap up the Help to Buy scheme while you still can!
If you would like some help or advice about the Help to Buy scheme, feel free to call us on 0800 038 6699. We’re here seven days a week.