Money Means guides are brought to you by FSCS, the people who protect your money from £1 up to £85,000 in UK banks, building societies and credit unions. Find out more.
Those struggling to get a foot onto the bottom rung of the property ladder have been given a big helping hand in recent years thanks to a raft of Government initiatives – including the successful Help to Buy scheme.
Some are even saying that this could be the year that “Generation Rent” becomes “Generation Buy.” But first, you need to figure out which type of help will be best for you as you save to get on the property ladder.
Help to Buy Equity Loan
With the Equity Loan scheme, if you’re able to put down a deposit of at least 5%, you can secure a new-build home worth up to £600,000, as the Government will lend you up to 20% of the rest of the value of the property, interest-free for five years. This means you can access more affordable 75% mortgages.
The loan is not repayable until you sell the property and it is repayable at the same percentage of the sale price as of the purchase. For example, if the loan was 20% of the purchase price, 20% of the sale price would be due. After five years, you will be charged a fee of 1.75% of the loan’s value. The fee will then increase every year; the increase is worked out by using the Retail Prices Index (RPI) plus 1 %.
Help to Buy London
The Government recently added Help to Buy London to the equity loan scheme to reflect the higher property prices in the capital.
This enables eligible buyers to put down a deposit of as little as 5% while the Government provides an equity loan of up to 40% interest-free for five years. The remaining 55% is then funded by a mortgage.
Help to Buy Mortgage Guarantee
If you have a deposit of 5% but don’t want to sign up to a shared equity arrangement, you could apply for a Help to Buy Mortgage Guarantee instead. This works in exactly the same way as any other mortgage, except the Government offers lenders the option to purchase a guarantee on home loans.
As a result, lenders taking part are able to offer home buyers higher loan-to-value (LTV) mortgages of between 80% - 95%.
You can use this scheme to buy either a new-build property – or an existing home – costing up to £600,000.
If you sign up, you will be fully responsible for your mortgage repayments, meaning that if you have a 5% deposit, you will need to take out – and pay back – a 95% mortgage.
For a full list of lenders visit Gov.uk/affordable-home-ownership-schemes/help-to-buy-mortgage-guarantees.
Help to Buy ISA and Lifetime ISAs
The Help to Buy ISA (Individual Savings Account) will give a big boost to those struggling to save a deposit.
Under this scheme, launched on December 1, 2015, you can put up to £200 away each month and the Government will then top this sum up by 25%; this means £50 for every £200 saved.
There is also the option of paying in an initial one-off lump sum of £1,000 to get the account started.
Equally, couples buying together can get a potential boost of up to £6,000 towards a deposit for a first home.
This ISA will only be available until 2019. It is set to be replaced by the Lifetime ISA, which will be available from next April and will also offer a 25% government top-up on savings for up to £4000 per year. The money saved in this ISA can be used to buy a home or to provide income in retirement. The ISA is available to people aged 18-40.
For more details of lenders in the Help to Buy scheme visit:
What is Money Means?
Money Means is a news and information series written by independent financial and consumer journalists and experts. FSCS launched Money Means in 2016 to help give people clear and useful information about personal finance, to increase their understanding and confidence when dealing with money. .