Help to Buy

House On Green FieldIf you are looking to buy a home of up to £600,000, you may be able get help through the government’s Help to Buy initiative.

There are three options under this initiative:

  • Help to Buy Equity Loan
  • Help to Buy Mortgage Guarantee
  • Help to Buy Shared Ownership

Help to Buy Equity Loan

This scheme is available to all homebuyers who are buying a new-build home worth up to £600,000. But, you must be planning to live in the property. Help to Buy Equity Loan is not available to buy a second home or a buy-to-let property.

If you can fund a deposit of at least five per cent of the purchase price, the government will give you a loan of up to 20 per cent. You can then use a mortgage of up to 75 per cent to cover the rest of the price.

You will not be charged fees on the government’s loan in the first five years. After this, you will be charged fees of 1.75 per cent and this will increase every year at one per cent above inflation.

You must buy your home from a registered Help to Buy builder. So, you should contact the Help to Buy agent  in the area you wish to live in and they should be able to give you a list of registered builders. You may need to get a mortgage-in-principle to make a reservation with the builder. The builder may require a reservation fee.

You will have to pay back your loan when you sell your home or when your mortgage period ends. You can also pay the loan back at any time before the end of your mortgage period.

Help to Buy Mortgage Guarantee

This scheme allows lenders to buy a guarantee from the government on up to 15 per cent of the mortgage. You can buy any type of property, not just a new-build, of up to £600,000. You should be able to provide a deposit of between five to 20 per cent. You must be planning to living in the property and not own other property anywhere in the world. The mortgage must be taken out on a repayment basis only and cannot be for a Help to Buy Equity Loan or Shared Ownership.

At the moment, the following lenders are currently participating in the scheme:

  • Bank of Scotland
  • Halifax
  • NatWest
  • RBS

Help to Buy Shared Ownership

This scheme is available for buying new build properties or on the resale of property under shared ownership. To be eligible for this scheme:

  • you must be a first time buyer
  • you must be a council or housing association tenant
  • your household income should be £60,000 or less

You can either take out a mortgage to buy a share of between 25 and 75 per cent of your home or pay a subsidised rent on the remaining share owned by the Housing Association 

  • If you are aged 55 or over, you may be able to get help from another Help to Buy shared ownership scheme called Older People’s Shared Ownership. The difference from the main shared ownership scheme is that you cannot own more than 75 per cent.  But, if you have reached the 75 per cent mark, you will not have to pay rent on the remaining share.
  • If you wish to own your home under the Home Ownership for People with Long-term Disabilities scheme, you will need to apply for affordable home ownership assistance through your Local Home Buy Agent. You must also meet the general eligibility criteria, that means that you must be:
    • a first time buyer
    • a council or housing association tenant and
    • your household income should be £60,000 or less

If you wish to buy a property under the shared ownership scheme, your local Help to Buy agent, will be able to provide a list of participating housing associations in the area. Alternatively, if you are interested in buying from a particular housing association, you can contact their shared ownership department directly. 

Once you have found a property, you will need to make a payment to reserve it (usually around £500). The housing association will then carry out a credit reference check, and if satisfied, they will make an offer to you.

If you accept the offer, the housing association will arrange an interview with an independent financial advisor. The advisor will help you to decide what share you can afford to buy based on your income and savings, and also to arrange a suitable mortgage. You will also need to appoint a solicitor. You will also need to appoint a legal advisor. Exchange of contracts usually takes place four weeks after your interview with the financial adviser.

If you want to increase the share of the property you own, the price for what you will buy depends on the value of your home at the time. The housing association will arrange a valuation but you will usually have to pay the cost.

You will be able to sell your share whenever you want, just like any other home owner. If you do not own 100 per cent of the property, there may be a term in the lease that allows the housing association to find a buyer within a certain time. If they do not find a buyer within this time, you can then sell your home on the open market. If you own 100 per cent, the housing association will usually retain a ‘right of first refusal’ for up to 21 years. This means that you will have to first offer the property to the housing association to buy. If they decide not to buy, you can sell it to another buyer.

  • If you do not want to buy a share of a property yet but plan to do so in the future, Rent to Homebuy allows you to rent a new build property for an agreed period of time, on the understanding that you will buy a share at the end of the rental period. During the rental period, the housing association will charge an affordable rent of up to 80 per cent of the market rent value. At the end of the rental period, you will be assessed to see if you meet the eligibility criteria to buy a share and that you can afford it. If you are no longer able to afford to buy, the housing association may renew your tenancy for another agreed period but there is no guarantee of this. If your tenancy is not renewed, you will need to leave the property. It is likely that you will have been given an assured shorthold tenancy but this may vary depending on your landlord.

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