HELP TO BUY SCHEMES:
You could get started on the property ladder by taking advantage of an affordable home scheme.
Providing you qualify for financial help from the UK government to buy a home, you could get:
- Help towards saving for a home through a Help to Buy ISA. This is part of a UK-wide project.
- A Help to Buy equity loan (low-interest loan). This particular scheme is only available in England and in Wales.
- Help buying a home through shared ownership (also a UK-wide project).
Note: The Help to Buy mortgage guarantee scheme is no longer available. It closed at the end of 2016. But, a new government equity loan scheme called ‘Help to Build‘ will help people self build or custom build their own home.
There are opportunities available for buying your own council home or housing association property. Most council tenants will have the ‘Right to Buy‘ their council home. Likewise, tenants also have ‘Right to Acquire‘ (e.g. buying housing association homes).
Important: The Housing Minister announced that the 28th of February 2021 has become the new deadline for the Help to Buy scheme.
Help to Buy Equity Loan Scheme
A ‘Help to Buy’ equity loan is a special type of low-interest loan used towards a deposit when buying a property.
Help to Buy Equity Loan Eligibility
To qualify for this type of equity loan the home you are buying must be a new build, the only one you own, and:
- Have a purchase price no higher than £600,000 if it is in England or up to £300,000 in Wales.
- Not be sub-let or rented out to a subtenant after buying it.
- Be able to show that you cannot afford the property (if applying for the equity loan scheme in Wales).
How the Equity Loan Works
You are going to need a 5% deposit before you can get the equity loan. Once you have secured the deposit:
- The government will lend up to 20% (up to 40% for a property in London).
- You need a mortgage lender to secure the rest (e.g. 75% or up to 55% in London).
Note: You can only buy a home from a registered Help to Buy builder listed with one of the local agents. Some Help to Buy equity loan rules differ in Wales.
Help to Buy Equity Loan Fees
Equity loan fees need repaying but not during the first five (5) years. You would get charged a 1.75% fee of the loan value in the sixth year. The fee then increases each year afterward according to the Retail Prices Index plus 1% (one percent).
The monthly fee arrangements will be set up by the Help to Buy agent. They also send an annual statement about the loan and the repayments.
Note: The fees do not count as part of paying back the equity loan.
Paying Back the Equity Loan
You would need to pay back the loan if you sell your home or after 25 years (whichever happens first). The total amount you pay varies according to the market value of the property.
You can also choose to pay back the loan early – either in part or in full. But, the smallest repayment allowed is 10% of the market value of the home.
How to Apply for Help to Buy Equity Loan
- England: Apply through a Help to Buy agent in the area where you plan to live.
- Wales: Apply through the government housing association.
Note: The Equity Loan scheme closed on the 31st of March 2021. Some applicants may use the Help-to-Buy ISA as a replacement.
Payment Holidays Due to Covid-19
Some homeowners may be struggling to pay interest fees on their equity loan because of the coronavirus outbreak. The UK Government announced payment holidays on Help to Buy equity loans taken out before the 31st of March 2015.
Help to Buy ISA
The government can help those who are saving to buy a first home. The Help to Buy ISA scheme can top up your savings by 25% (to a maximum of £3,000). If you are buying a home with another person they may also qualify for a Help to Buy ISA.
Note: This type of affordable home ownership scheme is not a loan. Thus, you do not need to pay it back to the government.
Help to Buy ISA Eligibility Criteria
To qualify for the Help to Buy ISA the property that you buy must:
- Have a purchase price of no more than £250,000 or £450,000 if it is in London.
- Be the only home that you own and be where you intend to live.
Note: The rules allow you to use the Help to Buy ISA scheme in conjunction with a Help to Buy equity loan.
How the Help to Buy ISA Works
The first payment to the ISA can be no more than £1,200. You can then pay up to £200 per month afterward. The conveyancer or solicitor would apply for the extra 25% when you buy the property.
How to Apply for Help to Buy ISA
You can apply from any one of the following in this list of Help to Buy Individual Savings Account providers:
- Aldermore Bank
- Bank of Scotland
- Clydesdale Bank
- Lloyds Bank
- Newcastle Building Society
- Ulster Bank
- Virgin Money
- Yorkshire Bank
Buying through Shared Ownership
Your local housing association may offer a shared ownership scheme. If so, you would buy a share of your home (from 25% to 75%) and then you pay rent on the rest.
Shared Ownership Eligibility Criteria
You can only buy a home through shared ownership if your household earnings are no more than £80,000 a year.
The upper threshold rises to £90,000 a year for a property in London. Besides the earnings criteria, any of these must also apply:
- You are a first-time home buyer.
- You owned a home before but you cannot afford to buy one now.
- You are an existing shared owner.
Note: Different rules on buying through shared ownership apply in Northern Ireland and Scotland. Your local authority can give further advice on buying a shared ownership home in Wales.
How Buying through Shared Ownership Works
All shared ownership properties are leasehold. That means you would only own a leasehold property for a fixed period of time.
People Aged 55 and Over
You can buy up to 75% of your home once you get to the age of 55. It takes place through the Older People’s Shared Ownership (OPSO) scheme. In this case, owning 75% means you would not pay rent on the rest.
You can apply for a scheme called ‘HOLD’ or home ownership for people with a long-term disability. You qualify if other Help to Buy scheme properties fail to meet your needs (e.g. needing a ground-floor property). You can buy up to 25% of your home with this particular scheme.
Note: Being disabled means you can also apply for the general shared ownership scheme. You could own up to 75% of your home with this scheme.
Buying Extra Shares
If you become the owner you can then buy more of the home – called ‘staircasing’. The cost of the new share varies. It would depend on the value of the home at the time you want to buy the share. As a rule, it costs:
- More than the first share if property prices in the area have increased (gone up).
- Less than the first share if property prices in the area have decreased (gone down).
The housing association would get the property valued. Following that, they would inform you of the cost of a new share. But, you would be responsible for paying the valuation fee.
Selling a Shared Ownership Home
The housing association has the first right to buy it if you own a share of your home. This is also called the ‘first refusal’. In fact, the housing association would also have the right to find a buyer for the home.
Note: Owning the full 100% of your home means you can sell it yourself.
How to Apply for Buying through Shared Ownership
You should contact a Help to Buy agent in your local area if you want to buy a home through a shared ownership scheme.