WHAT IS THE HELP TO BUY SCHEME?
Buying a home is one of, if not, the biggest investment we will make in our lives. Sometimes, especially in more recent years, buying your own home and being able to call yourself a homeowner has been perceived as nearly impossible.
It’s no secret that the UK is currently in the midst of a housing crisis. Mainly affecting young people looking to get a foot onto the property ladder.
For some, home ownership schemes from the government provide the best chance for those of us looking to buy our first home. One scheme that is available now is the ‘Help To Buy’ scheme. But what is this scheme? Let’s discuss it.
Help To Buy Explained
This scheme offers first-time buyers an equity loan towards the cost of buying a new build home. To get started, you will have to pay a 5% deposit of the property purchase price. Depending on what region you are in, there is a maximum property purchase price. For example, the North East has the lowest maximum property purchase price of £186.100. London has the highest price at £600.000. The East of England has a maximum property purchase price of £407.400.
The next step would be to borrow an equity loan of up to 20% of the cost of the property. This would leave you with a 75% mortgage to pay back the rest of the price of the property.
Keep in mind, that for the first 5 years of owning your property, you will not be charged loan fees for the borrowed 20%. This will kick in the 6th year with 1.75% of the loan. This fee will increase after each year in line with the retail price index (RPIs).
On paper, this way of buying your first property is cheaper than a standard loan. Though this isn’t always the case. So, be sure to speak to an expert before deciding on an option.
Let’s take a quick look at the advantages you may be able to benefit from with Help to Buy:
- You could get your foot on the property ladder (and sooner than you might have thought)
- You could buy with a smaller deposit
- Borrow interest-free for the first 5 years
- Possible access to cheaper mortgage rates
- Competitive loan rate after the 5 years
As with most things, Help to Buy comes with a few disadvantages that may sway you to consider other options:
- Your loan amount isn’t fixed
- Fees and other terms of your agreement could change
- Loan will be increasingly expensive as time goes on
- Properties you can buy are limited to certain new build homes
- You can only use specific lenders
- There is a risk of negative equity
There are a couple of government schemes available to the public. Each one coming with its own sets of pros and cons. This is where it is up to you to decide what is best for you. As mentioned above, seeking the help of a professional to help you is a great way to ensure your investment is protected.