The accomplishment of buying a home, especially for a first-time buyer, is a significant one. However, while the process is exciting, being successful at it requires getting all the details right. Besides the house’s type and location, having the finances to facilitate the purchase is one of the major aspects to consider. For most buyers, saving for a down payment is necessary, but sometimes even a small down payment can be difficult to save. In such instances, the Help to Buy scheme is an option.
Help to Buy is a government-backed initiative that aims to help first-time buyers purchase new properties. With just a five percent deposit, the scheme provides an equity loan that covers an added amount of the home’s value (up to 20 percent), with the remainder paid off through a mortgage. A Help to Buy equity loan doesn’t accrue interest for the first five years, which kicks in after this period. For buyers, the loan allows them to take out a smaller mortgage and get onto the property ladder without large deposits.
In England, the Help to Buy scheme has helped many first-time buyers and home movers get the financing needed to own a home. Additionally, this main initiative has other plans available to buyers.
- Help to Buy Equity Loan. This scheme allows first-time buyers to borrow up to 20 percent on participating new-build properties. It has a £600,000 cap on the property value and from April 2021 will be limited to first-time buyers.
- London Help to Buy. First-timers interested in new-build properties within the capital can borrow up to 40 percent, with the property value capped at £600,000.
- Help to Buy ISA: This ISA is only open to first-time buyers, who receive a tax-free government bonus to get them on the property ladder. Buyers can save up to £200 monthly into a Help to Buy ISA, and when they are ready to purchase, the government tops up the ISA by 25 percent (for a maximum bonus of £3,000). The maximum full property value for purchase is £450,000 for properties in London and £250,000 for the rest of the UK.
- Help to Buy Armed Forces. Armed Forces personnel can borrow up to half of their annual salary interest-free for a deposit, with the maximum loan amount set at £25,000. The loan has a repayment period of ten years.
- Help to Buy Shared Ownership. Through shared ownership, a buyer purchases a share of a home and pays a reduced rent on the remaining portion. The percentage paid by the buyers can range from 25 to 75 percent of the home’s full value.
The Help to Buy scheme was introduced as part of government efforts to boost home construction and restore confidence in the housing market. For property stakeholders such as Zuneth Sattar, the scheme has played an important role in helping people with lower incomes become homeowners. As of October 2018, more than 400,000 people had got a foot on the housing ladder thanks to it.
The obvious benefit of considering Help to Buy is access to additional funds that can help reduce a mortgage loan value. For example, an individual with a five percent deposit would require a 95 percent mortgage. Through the scheme, they can take out a smaller mortgage (75 or 55 percent) that can enable them to purchase a home.
The early years of repaying a mortgage are typically among the hardest, so an interest-free period on the Help to Buy loan is welcome news for many. Having this breathing space can allow an individual to get their finances stable before commencing interest payments on the loan.