Buying Schemes To Help Get You On The Property Ladder

An information guide

Starter Home Initiative 

Who is it for?

The Starter Home Initiative is for first time buyers, and applies only to new build homes.

What is it?

The Starter Home Initiative is looking to offer a 20% discount on new homes up to the value of £250,000 (£450,000 for properties in London).

It’s aimed at first time buyers only, who are under the age of 40, and with an income less than £80,000 per year (individually or combined), and £90,000 for those living in London. 

Thirty councils have been selected to drive the project forward, with the new homes planned for sometime in 2017. The councils which have been selected are as follows: Blackburn, Blackpool, Bristol, Central Bedfordshire, Cheshire West and Chester, Chesterfield, Chichester, Lincoln, Ebbsfleet, Fareham, Gloucester, Greater Manchester, Lincolnshire, Liverpool, Luton, Mid Sussex, Middlesbrough, North Somerset, Northumberland, Pendle, Plymouth, Rotherham, Rushmoor, Sheffield, South Kestevan, South Ribble, South Somerset, Stoke-on-Trent, West Somerset and Worthing.

Planning is well underway for this project, and anybody interested in the Starter Home Initiative can currently register their interest online here.

Is it right for you?

It’s worth knowing that if you’re looking to stay in one home for a short period of time before moving on to another in a couple of years, then the Starter Home Initiative might not be for you. These properties are required to remain at 20% below market value for 5 years. So if you were looking to move within this period, you wouldn’t be able to sell at full market value - and the same applies for letting the property too. 

Help to Buy Scheme

Who is it for?

The Help to Buy scheme works for first time buyers and existing homeowners too but it only applies to new build homes.

What is it?

With a 5% deposit saved, the help to buy scheme allows you to borrow up to 20% of the property value from the government, and then secure a mortgage for the remaining 75%. 

The scheme was launched in April 2013, and official statistics have shown that since the 1st April 2013 through to the 31st December 2016, 112,338 new build homes were bought using the help to buy equity loans, with 81% being first time buyers. 

The Help to Buy equity loan is available on properties up to the value of £600,000. 

Is it right for you?

The equity loan is free of interest for the first 5 years, however after this period there will be a fee added, calculated at 1.75% of the equity loan plus 1% in subsequent years. This fee will also increase year on year in line with the retail price index. It’s important to know that these payments will sit alongside your monthly mortgage payments. Alternatively however, if you are able to pay the loan back within 5 years, no fees will be added.

Also worth knowing is that if you don’t repay your loan and sell the property, the government will take 20% of the final sale value whether it’s higher or lower in monetary terms than the amount originally lent. 

Note also that not all lenders offer help to buy mortgages, so you’ll need to look around to find the right mortgage deal for you. 

Help to Buy - ISA

Who is it for? 

The Help to Buy ISA is for any property whether it’s new or old, but it’s only available for first time buyers. You must never have owned an interest in a residential property either inside or outside the UK, whether the property was bought or inherited. 

What is it?

If you’re saving up for your first home, then the government will top up your savings by 25%. Your first payment can be up to £1200, with monthly payments of £200. The minimum bonus offered by the government is £400 on a minimum savings balance of £1600, and the maximum bonus is £3000 on a savings balance of £12,000. The Help to Buy ISA is only available on properties up to the value of £250,000 and £450,000 in London. 

You are able to open a Help to Buy ISA up until December 2019, and bonuses will be added as long as it is used for a house deposit by December 2030. 

Is it right for you? 

If you’re looking to buy a home with a partner who is also a first time buyer, you can both open a Help to Buy ISA and potentially get a bonus of £6,000. However, if you’re looking to buy with somebody who has previously owned a home, only you will be eligible for a Help to Buy ISA. 

One of the pluses of a Help to Buy ISA is that many different providers offer them, meaning you can choose which one is right for you rather than being forced to pick from a small number of providers. You can also change providers whenever you want, meaning you can chase the best interest rates as you save. 

It’s also worth noting that if you’re looking to buy the property with the sole purpose of renting it out, then the Help to Buy ISA is not available. If you were to get a Help to Buy ISA for this purpose and later be caught out, the government would seek to get the bonus back from you. The Help to Buy ISA is principally there for those looking to buy a home where they intend to live full time, however if your circumstances change further down the line and you do need to rent the property for a time, the government has recently decided that this would be able a viable option.

You can also make partial withdrawals from your ISA account, but note that the bonus wouldn’t be based on the amount withdrawn. You would however still be able to make contributions and the bonus would be ultimately based on the closing balance of your account. You ultimately don’t have to use the money to buy a house if you change your mind either - but note you would not be entitled to the government bonus. 

Remember also that your solicitor has to apply for the government bonus on your behalf, which takes time and admin work, so expect a fee from them. 

A future government may also change the rules surrounding the Help to Buy ISA, so keep this in mind and consider whether this is something you’d be comfortable with if circumstances did change. 

Shared Ownership

Who is it for?

Shared ownership is available for both first time buyers and existing homeowners, and applies to new build homes and existing ones through resale programmes by housing associations. 

What is it?

Shared ownership lets you buy a stake in a property that falls somewhere between 25% and 75% of the property’s value. This is achieved through a deposit and mortgage, just as if you were going to buy the whole property. 

However with shared ownership you instead pay pay rent on the remaining share. As time goes on there are options available to buy a greater share from the housing association - known as staircasing -  but it’s important to check what rules your local housing association has in place. Typically you would be expected to buy a further 10% share as a minimum each time, and most housing associations will only let you staircase three times - the third and final time taking you up to 100% ownership of the property.

Shared ownership properties are also always leasehold, meaning you only own the property for a fixed period of time and don’t own the land which the property is built on - meaning you’d have to pay an annual ground rent fee. In shared ownership properties, leases are typically around the 99 year mark. 

Is it right for you?

There are some things to note when deciding if shared home ownership is right for you. Make sure you check your lease closely, there could well be restrictions in there that will stop you from making any structural changes within the property. Stricter leases may also require you to ask permission before any redecorating can go ahead, so be mindful if these are conditions you would find frustrating to live with. 

It’s also important to keep in mind that rent is paid on the part of the property not owned by you. The developer or housing association is well within their right to take action in repossessing a property where a tenant has fallen into rent arrears. Whilst you don’t have to move towards owning 100% of the property if it’s not what you want to do, it’s worth knowing that unless you do, the developer or housing association will remain the legal owner of the property and falling behind on rent payments could have serious consequences. 

Part Exchange Schemes

Who is it for?

Part exchange works only for existing homeowners, but not for first time buyers, and applies to new build homes only. 

What is it?

Part exchange is something many developers offer, and works by allowing you to trade in your home as part payment for a new build property. 

Is it right for you?

Part exchange schemes work very well for some but is not the right move for others to make, so consider your options carefully. It’s good for those who are looking to move quickly such as for a new job as you’re not stuck in a property chain. It’s also an option for those who perhaps have had difficulty in selling their home in the past and have had to put off moving for several years. 

However, be aware that you’re likely to be offered less than your property could achieve on the open market. Be mindful that if you are offered 100% market value on your old home, it’s most likely because the price of the new property has been inflated. But be aware that you can - and should - try to negotiate the price offered on both your existing home and the one you are about to buy. Make sure you are treating a part exchange like any other property transaction. 

Each developer also has its own list of criteria for part exchange schemes, so you will need to put some time aside to get to grips with what each developer is offering and whether you are eligible to part exchange with them. 

For more information on any of the schemes outlined above, you can find more information on the following website:
https://www.ownyourhome.gov.uk/schemes-all/
 

Publish date: 22/09/2017