With some first-time buyers feeling priced out of the property market, many are turning to alternative homebuying options such as Shared Ownership and Help to Buy to ascend the housing ladder.
But what are they, and how exactly do they benefit first-time buyers? Here at Centrick, we take a closer look…
Help to Buy is a scheme that allows buyers to purchase a home with the help of an equity loan – also known as shared equity.
Through Help to Buy, the government provides a loan of up to 20% of the home and the buyer only needs to raise a 5% deposit, with a 75% mortgage making up the rest. So, a 5% deposit of a home costing £500,000 would be £25,000.
The scheme is available to first-time buyers, those who have previously sold a home, and those who have sold their current property before or at the point of completion on their Help to Buy home. There is no maximum income cap for this scheme.
While the equity loan is only available on new-build homes, buyers cannot purchase a property that is on the market for more than £600,000.
Help to Buy is also interest-free for five years, and you will only be required to make your mortgage payments and a monthly management fee of just £1 during this time. Once the five years are up, you will go on to pay an annual fee of 1.75% on the amount of the outstanding loan, but this amount will fluctuate with the value of your home.
When you come to sell your home, or at the end of your mortgage period – whichever comes first – then you will have to pay back the Help to Buy equity loan. Failure to repay the loan by this time means the government will reclaim its percentage stake in your property at its current value.
It’s important to bear in mind, though, that the current equity loan will change from 2021, and the Help to Buy scheme is set to end in March 2023.
The Shared Ownership scheme enables purchasers to buy a share of a home (between 25% and 75%) and pay rent on the remainder to a housing association.
Similar to Help to Buy, Shared Ownership is available to first-time buyers, those in the process of selling, and those who have previously owned a home but have since sold. To be eligible for the scheme, the maximum household income must not exceed £80,000 across the UK.
In terms of property type, the scheme is mostly available on purpose-built homes, including new-build properties and resale properties that are being sold by the current shared owner. Shared ownership homes are always leasehold.
Regarding the deposit, you only need to raise 5% of the share that you are buying, not on the full value of the property. So, if a property costs £500,000 and you purchase a 25% share – equating to £125,000 – then your 5% deposit would be £6,250.
Furthermore, if you choose to increase your owned shares (known as ‘staircasing’), then your monthly mortgage payments will increase, and your rent will decrease. In most cases you can staircase up until you own 100% of your property. Once this happens, you will only be required to pay your monthly mortgage payments.
Earlier this year, the government announced its plans for a new national model of Shared Ownership, where people can staircase up by 1% each time, rather than 10%.
If you wish to sell your home, you can choose to do so at any time. Under the terms of your lease, your housing provider has a set period of time to try and find a buyer for your home first – typically eight weeks. If they cannot find a buyer, you can opt to sell your home privately or through an estate agent.
If you’re still unsure about which first-time buyer option might be best for you, or you require some advice on buying your first home in the Midlands, Centrick is hosting a FREE event where you can discuss all things Help to Buy with our experts, financial advisers and solicitors, as well as take a look at some of the brilliant schemes n offer through Centrick that are part of the Help to Buy scheme. The event is on Wednesday 29th January, between 12 – 7pm and to register your appointment, simply click the link HERE
Also, if you happen to be selling before you buy, you can request a free, instant online valuation to see how much your home could be worth on the current market.
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