The Help to Buy Scheme Explained – But is it worth it?
If you’re fresh out of University, or a student beginning to think about saving up for a deposit, there are a number of Government schemes that may help you. With so many different schemes being offered and so many different clauses it can be difficult to make the decision which one is right for you.
Here we take a look at one of the most commonly written about Government schemes; Help to Buy. We have spoken to property experts, Abacus-Law to discover just how the Help to Buy scheme works and if it’s something you should be looking into.
What is ‘Help to Buy’?
The Help to Buy programme was launched in 2013 as a government initiative, with the aim of helping first time buyers get their foot on the property ladder. The program has many different schemes that could enable buyers to afford a deposit on a property.
The Help to Buy Schemes
The Help to Buy Equity Loan
Help to Buy equity loans are offered as part of the Help to Buy scheme for first time buyers or those looking to move with savings equivalent to 5% of the property they are looking to buy.
Based on this, the Government lends you a further 20% of the property price and the rest is covered by your mortgage.
One of the main attractions to the Help to Buy equity loan scheme is that you would not need to begin paying back the equity loan until 5 years had passed.
There are a few conditions for those applying for this scheme:
- The home has to be newly built.
- It has to be under a price tag of £600.000.
- You can’t sublet the new home – you need to live in it yourself.
- You can’t enter into a part exchange on your old home .
What is the Help to Buy ISA?
Another scheme that is part of the Help to Buy programme is the ISA. In the ISA scheme, the Government will boost your savings by 25%. For instance, every £200, the government will add a government bonus of £50, with the maximum government bonus being £3,000.
You can be 16 and over to be eligible for the Help to Buy: ISA, making this ideal for students, particularly mature students in their final year who are perhaps thinking about the next step.
£400 is the minimum government bonus, meaning you will have to of saved at least £1,600 into your Help to Buy: ISA before you receive anything
When you are close to buying your home, you will need need to instruct your property solicitor to apply for the Government bonus. Once this is recieved, it will be put towards the home.
What is Help to Buy shared ownership?
If you struggle to afford a mortgage on 100% of the home, the Help to Buy: Shared Ownership offers you the opportunity to buy a share of it instead. The amount is between 25% and 75% of the homes value and you pay rent on the remainder. You can always buy bigger shares in the future when you can afford them.
How Can the Help To Buy Scheme Help You?
Help to Buy is aimed at helping thousands across the UK get on the property ladder, with less of a deposit than usually required.
Furthermore, because you are borrowing less money overall when you use the Help to Buy scheme, it means you have a better possibility of qualifying for a mortgage in the first place.
Implications on the wider housing market
The Help to Buy scheme and the resulting increase in first time buyers is designed to have a knock-on effect on the UK’s housing market. It will help the wider economy and increase the amount of new homes being built by property developers in the UK.
The Main Problem with Help to Buy
Whilst the positives for the Help to Buy scheme are plentiful, it isn’t without its drawbacks.
As the Help to Buy equity loan isn’t fixed, it means the amount you need to pay back could actually be much more than you borrowed. This amount will inevitably fluctuate with the market value of your home, as it’s all percentage based.
For this reason, Help to Buy is putting many buyers off, who instead are opting to save for a larger deposit and a straightforward, fixed rate mortgage.
Is Help to Buy actually worth it?
The Help to Buy schemes could actually have the opposite intended effect and make it more difficult for others to buy houses. Although between 2020-2021 the Government have promised to build 40,000 more affordable homes, many experts believe that at present this won’t be enough and eventually the demand will overtake the supply, making it impossible for many people to get on the ladder.
Is Help to Buy right for you?
Buyers should always weigh up their options carefully and seek professional advice. If you don’t have the amount for a deposit on a house right now, it might be worthwhile waiting until you can afford to take out a mortgage with a larger deposit, which can be a lot cheaper in the long run.
However, if you simply cannot wait to get yourself on the ladder, and saving more money isn’t an option, than Help to Buy might just be for you.