Tips for First Time Buyers!

Government Schemes to help buyers

 Prior to Christmas, The Chancellor of the Exchequer committed £3.7 billion to housing projects, including the development of 100,000 new ‘affordable homes.’ Today, the government has announced plans to commence building thousands of ‘Starter Homes’ under a scheme initially revealed in 2014.

With the publication of the White Paper on housing supply due later this month and pre-existing Help to Buy and Right to Buy schemes, there is clearly no mistaking the government’s intention to encourage home ownership.

With so many options available, how do you know which is the right one for you?

In order to assist your understanding, here is our overview of the major schemes that currently exist.

Help to Buy Schemes

Help to Buy ISA

If you are over the age of 16, have a valid National Insurance Number, are a UK resident, a first time buyer and do not own property anywhere else in the world, you will be eligible to take out the government’s Help to Buy ISA.

Once you have opened the ISA, simply make regularly monthly deposits of up to £200 a month (You may pay in £1,200.00 in the first month) and the government will boost your savings by 25%. The minimum bonus amount the government will pay is £400.00, which means you will need to save at least £1,600.00 to take advantage of the scheme and the maximum bonus they will pay is £3,000.00 (based on savings of £12,000.00).

Once you have found a property you wish to purchase, you must notify your solicitor that you have a Help To Buy ISA and they will guide you through the steps of closing the account and claiming the bonus. The bonus can only be used towards the purchase of a property that is in the UK, that you intend to live in, that will be your only home and that you are buying with the help of a mortgage. The purchase price must be no more than £250,000.00 (£450,000.00 if in London).

Example: You save £2,000.00 in the ISA. Prior to completion of your purchase of an eligible property the government will pay £500.00 to your solicitor to be used towards the purchase.

If the purchase does not complete, the £500.00 bonus will be returned to the government.

Help to Buy Equity Loan

The government’s Help to Buy Equity Loan is not only available to first time buyer’s but also to homeowners looking to move. To be eligible, you must have at least 5% of the purchase price available in savings, not own any other property when you purchase the new property, must be purchasing with a mortgage and the property you purchase must be a new build registered Help to Buy property, with a maximum value of £600,000.00.

Each applicant will also go through a financial assessment regarding your household income and debt to ensure that they are eligible.

If you are eligible for the loan, the government will lend you up to 20% of the purchase price (up to 40% in London) meaning that you would only require a mortgage of 75% (55% in London) and your savings of 5%.

No interest will be charged on the Equity Loan for the first 5 years however a £1.00 a month management fee will be charged from the date of completion. From year 6 of the purchase, interest will be charged at a rate of 1.75%, rising annually by the Retail Price Index inflation plus 1%.

When you sell the property, you will need to pay back 20% (or 40% if in London) of the sale price (plus interest if relevant) to the government.

Example: You are eligible, live in London and wish to purchase a new building Help to Buy property for £400,000.00. You will require savings of £20,000.00 (5%); the government will provide an Equity Loan of £160,000.00 (40%) and you will require a mortgage of £220,000.00 (55%).

If you sell the property within 5 years for a sale price of £500,000.00, you will pay £200,000.00 (40% of the sale price) back to the Government, leaving you £300,000.00 to clear your mortgage.

Help to Buy Shared Ownership

If you are unable to obtain a mortgage for 100% of the value of a property the Help to Buy Shared Ownership scheme may help you purchase between 25% and 75% of a home’s value and then pay rent on the remaining share.

You will be eligible for the scheme if your current household income is less than £80,000.00 (£90,000.00 if in London), you are a first time buyer, used to own a home a home and can no longer afford a new one or an existing shared ownership owner looking to move.

You will need to fund the purchase with a mortgage and the property must be a new build or a pre-existing shared ownership property supplied by a housing association.

Once you have purchased your share, you may be entitled to increase your share in the future by ‘staircasing’ your interest up to 100% of the property. We are happy to also guide you through this process.

Example: You purchase 75% of a property (with a full market value of £400,000.00) for £300,000.00. You will then pay rent on the remaining 25% to the Housing Association.

Right to Buy / Right to Acquire

If you live in a local authority house, (that is not sheltered housing), have lived there for at least 3 years, do not have any legal issues with debts and the property is not due to be demolished  you may be entitled to buy the property from the Council at a discount of up to £103,900.00 (£77,900.00 outside of London).

If the Local Authority has transferred their interest in the property to a Housing Association, you may still be able to purchase the property via the Right to Buy Scheme. If not, you may still be able to purchase the property via the Right to Acquire scheme, albeit at a lesser discount.

Starter Homes

Today’s announcement that the building of Starter Homes will commence this year has brought focus back onto a scheme that was first announced by the coalition government 2014. Whilst it will not be available until the properties have been built, interested parties may find further information at http://www.new-homes.co.uk/starter-homes/.

The scheme, which will allow purchasers to buy new build properties at a minimum 20% discount, will be available to first time buyers, who are under the age of 40.

The first 30 local authorities to take part in the scheme have been announced and include Greater Manchester Combined Authority (Bolton, Bury, Manchester, Oldham, Rochdale, Salford, Stockport, Tameside, Trafford, Wigan); Plymouth City Council; Sheffield City Council and Central Bedfordshire Council.

If you wish to discuss any of the above, or any other scheme, please do not hesitate to contact a member of W H Matthews & Co’s Property Department at your chosen office.