Getting on to the property ladder is now spectacularly difficult. Indeed, according to recent research the combination of high house prices, stagnant wages, the spiralling cost of living and the minuscule interest rates offered on savings means that it takes most people close to a decade to save the £31,000 needed to raise the average deposit.
As a result, various organisations are attempting to make it easier for first time buyers to get past these barriers. If you’re struggling to finance a move you may be able to benefit from a number of different schemes that could help you make that first purchase.
The government have recently updated the schemes available to assist those struggling to buy a home, and there are still more to come. Here’s a look at the various initiatives available;
Help To Buy Equity Loans
This scheme, which only applies to new build properties, allows you to purchase a home with only a 5% deposit.
Of the remaining 95% of the house price only 75% needs to be covered by a mortgage. The final 20% can be paid for using a loan from the government. The terms of these loans are extremely favourable. As well as being interest free there are no fees payable for the first five years.
After this period you’ll be charged fee of 1.75% of the house price, which will rise in line with RPI plus 1% year on year.
You do not need to repay the loan until you either sell the house or come to the end of your mortgage term, but you also have the option pay it back before time should you so choose.
You don’t have to be a first time buyer to make use of the scheme but you must have a good credit history and be able to demonstrate you’ll be able to put down the 5% deposit and meet the other costs of moving house, such as stamp duty. If you already own another property you’ll need to have your name removed from the deeds before completing your move. Finally, you can only use a Help to Buy loan for properties costing less than £600,000.
To look for eligible properties you need to find the Help to Buy agent for your area.
This scheme is very similar to ‘Help to Buy Equity Loans’ but with a couple of key differences. For one, it is only available for people with a combined household income of less than £60,000. The other key difference is that the equity loan, of which half is provided by the government and half by the housebuilder, can account for up to 30% of the price of the house. This means that between your deposit (which must be at least 5%) and the mortgage you only need to cover 70% of the house price, making it even more affordable.
Aside from these differences, the loans have the same terms as with the Help to Buy equity loan scheme.
The new buy scheme is also similar in that it allows you to purchase a home with only a 5% deposit. Again you don’t actually have to be a first time buyer to use the scheme, however you cannot use it to buy a second home or to purchase on a buy-to-let basis.
The property has to be a new build from a builder taking part in the scheme and can cost no more than £500,000. You also need to be a UK citizen or have indefinite leave to remain.
Other than that, you simply need to apply to one of the six lender’s participating in the NewBuy scheme as you would for any other form of mortgage. If you fulfil their criteria you can obtain a loan for up to 95% of the property.
You can look for properties available through the NewBuy scheme here.
Help to Buy Mortgage Guarantee
This scheme is another aimed at allowing people who would otherwise struggle to raise a big enough deposit to buy a home. The government will provide the mortgage lender a guarantee against 15% of the loan and, in return, they will offer mortgages of up to 95% of the price of the house. This means that, as with the other schemes described above, you only need a 5% deposit. however, it is significantly different in that it can be used to purchase both new builds and existing properties.
The scheme will not come into effect until January 2014 and will be available for properties costing up to £600,000. The property must be the main home of the person buying it and owned solely by them.
You will still have to secure a mortgage from a lender, passing their checks as you would normally, and it remains to be seen how affordable the rates on offer will be.
Shared Ownership Schemes
If you’re keen to have your money going towards ownership of a property instead of simply seeing it go into the hands of your landlord but cannot afford to take on a mortgage, you may be able to get help from a housing association.
Through a shared ownership scheme you could use a mortgage to buy between 25%-75% of your home whilst paying rent on the remainder. You will be eligible for this scheme if you earn less then £60,000 and are renting either a council or housing association property.
You can buy more shares in the home following your initial purchase though, the price you’ll need to pay could fluctuate up or down from your initial purchase depending on movements in the property market.
If eventually come to own the house outright and want to sell it the housing association has the right of first refusal, which means they can decide whether or not they want to buy it back before you can accept any other offers. If you only own a share of the house the housing association can look for a buyer to ensure your share is sold to someone in housing need.
The government’s Help to Buy shared ownership scheme is oversubscribed and therefore has to prioritise applicants. Existing social tenants and serving members of the armed forces are top of the list followed by those deemed to be ‘key workers’ by the local authority (these are generally people in roles such as policing, nursing and care work.) Anyone else who fits the criteria for the scheme, can demonstrate that they can afford their payments, don’t have adverse credit history, and cannot afford to buy a suitable home by another means will be dealt with after that.
Schemes From Lenders
Many lender’s have their own initiatives aimed at giving those with only a small deposit the chance to own a home. One popular method is to provide economical ways for family and friends in a stronger financial position to help a first time buyer obtain a property.
Mortgages Designed To Allow Parental Help
Obviously these products vary from lender to lender but generally they work on the same basis – whilst the homebuyer needs only a 5% deposit, their ‘helper’ (be this a parent or other loved one) will need to provide funds equivalent to between 10% – 20% of the property’s value. This money is held as a security in a special account where it will earn a decent amount of interest (usually 2-3%). The money is locked in this account for a set period of time (about three years) after which, as long as the homebuyer has kept up their repayments, it’s returned along with the interest it has earned.
The benefit here is that, thanks to the security you’ve been provided with, you can get a 95% mortgage and a rate that would normally come with a 75% mortgage, making it much more affordable in the long term.
Another way parents can help make buying a home more affordable for their children is through a ‘family offset mortgage’. These work in the same way as a regular offset mortgage, where savings are used to cancel out the interest on an equivalent portion of the outstanding loan. The difference is parents can link their savings account to their child’s mortgage (assuming they are happy to stop earning interest on their money.)
90% – 95% Mortgages
Though it may seem to go against what we hear about lending in the current financial climate, there are many lenders in the UK who offer mortgages to those with small deposits as part of their standard product line. Naturally, rates are comparatively high at close to 6% in some instances. (With a 25% deposit you’d expect a rate closer to 3.5%)
Other Offers from Other Financial Institutions
Financial institutions have a range of other products designed to make it easier for first time buyers to proceed with a purchase even if they only have a small deposit:
Save to Buy Accounts: You open a savings account or ISA in which you save towards your deposit. Once you’ve held the account for a set period of time (six months or so) as long as you’ve paid in regularly, you’ll qualify for a 95% mortgage and will receive a cash gift depending on how much you saved.
Mortgages Guaranteed by Local Authorities:
Some lenders already have schemes similar to the upcoming Help to Buy mortgage guarantee plan in place. You can get a mortgage with a 5% deposit so long as the local authority is happy to back you for 20% of the house price.
Offers from Developers
Aside from participating in government backed schemes, many property owners may offer their own deals to first time buyers who only have a small deposit available. Here are some examples of the sort of offers developers are currently offering:
Deposit Match: If you have a 5% deposit the developer will provide another 5% meaning you can benefit from access to a smaller 90% mortgage with a more affordable rate.
Shared Equity: Works in a similar way as the government’s equity loans, except the interest free loan comes from solely from the developer.
Family and Friends Schemes: Work in a similar way to the mortgage products described above.