What is the Help to Buy scheme and can I still apply?
GETTING onto the property ladder is no mean feat, but there are schemes to help you on the way.
House prices are still high despite falling at their sharpest rate in 14 years in August.
The average UK house price was £259,153 that month.
Costs fell by 5.3% - the biggest drop since July 2009 and left prices £14,600 below their August 2022 peak.
According to figures from Rightmove, the average two-year fixed residential mortgage rate is 6.55% while the average five-year fixed residential mortgage rate stands at 5.69%.
It means people are holding off from buying homes which in turn has led to house prices falling.
With a cost of living crisis, saving for a deposit can be unachievable while bills are spiralling.
The government's Help to Buy scheme was designed to make it easier for first-time buyers to save up the deposit typically needed to secure a home.
We explain what the government's Help to Buy Scheme is, and if it is still available.
What is the Help to Buy Scheme?
The Help to Buy scheme was a government scheme aimed to give budding buyers an equity loan and allow them to put down a deposit of just 5%.
You could get up to 20% of the value of your property - or 40% if you live in London - under the scheme.
The loan was interest-free for the first five years.
Unfortunately, the handy scheme ended on March 31, but closed to new applicants even earlier.
Anyone who feels they missed out and is struggling to save a deposit or afford a mortgage should take a look at some of the alternative initiatives designed to boost ownership.
Is the Help to Buy scheme still open for applications?
The scheme is set to end by March 31, 2023 - the date when all legal completions need to be finalised by buyers.
But you would've needed to act a lot sooner if you want to secure a home through the scheme because of the time it can take to buy a property.
Unfortunately, new applications for Homes England, which oversees the scheme, should already have been made.
What other government schemes can help first-time buyers?
Shared ownership
Shared ownership lets first-time buyers purchase a portion of the equity in a property if they can't afford to take out a mortgage for the total value of the home.
You’ll co-own your home with a housing association, which will charge you rent on its portion of the property.
Buyers will find they'll likely need to buy a new-build home.
Buyers must purchase between 10% and 75% of the property to use the initiative, and they can then “staircase” - buy more shares in instalments - until they own 100% of it.
You can put down a deposit of just 5% using a shared ownership scheme.
You don't have as much freedom when it comes to selling up - if you own less than 100%, your housing association will get a set period of time to find a buyer.
That means you won’t be able to accept a higher offer from someone else.
Or, you might have to sell it back to the housing association instead of putting it on the market.
This means there isn't much competition to offer decent rates.
Help to Build
Last year saw the government unveil its Help to Build scheme to first-time buyers.
You'll be able to build your own home with just a 5% deposit.
The government can give you an equity loan based on the estimated costs to buy the plot of land and build your home.
The loan amount can be between 5% to 20%, and up to 40% in London.
It will make building your own home more affordable, as currently, you'll need a deposit worth around 25% of land and building costs.
But there are some downsides.
Building costs can often run away - which means you could go over budget and end up forking out much more than you want to.
It could also be challenging to find land to buy and build on - including the faff of getting planning permission and a mortgage.
The Mortgage Guarantee Scheme
Buyers with a small deposit of 5% can use the government’s mortgage guarantee scheme to get a 95% loan-to-value (LTV) mortgage.
The initiative was originally due to finish at the end of 2022 but has been extended by another year.
You now have until December 31, 2023, to take advantage.
Under the scheme, the government covers some of a lender’s losses if a borrower defaults on the loan and the property is repossessed.
The backing gives banks more confidence to offer loans to those with small deposits.
First-time buyers can use the scheme as well as home movers – but the property you want to buy must be below £600,000.
Shared Ownership
If you are unable to save the deposit needed to buy a home or can’t afford the mortgage payments, Shared Ownership could be worth a closer look.
The government-backed scheme allows people to buy a portion of a property and pay rent to a landlord on the rest.
Buying a share of a property means the deposit and mortgage payments are smaller than if you were buying the whole lot.
However, you will need to be able to afford both the rent and the mortgage repayments.
You can buy more shares of the home when you are able to – a process known as staircasing – until you own the property outright.
Or if you want to move you can resell your share of the property.
For some Shared Ownership homes, you may have to show you have a job or links with the area where you want to buy.
You should also keep in mind that buying increasing shares in your home can be expensive.
Companies offering loans with 5% deposits
There are companies offering loans to first-time buyers with just 5% deposits to help them boost the home budget.
It works in a similar way to Help to Buy - but the key differences are that you can get a loan to cover up to 25% of the total value of a property, and it doesn’t have to be a new build.
You can repay your loan at any point - for example, you could choose to pay it back at all once when you sell up.
Ahauz is another company offering equity loans to buyers with a 5% deposit.
We spoke to one first-time buyer who is paying back more than double the interest he pays on his £30,000 Proportunity loan compared to his mortgage.
Plus, some lenders might not lend you a mortgage using an equity loan like this - so you might not get the best deal.
Meanwhile, the Sun Money's My First Home series highlights how savers transitioned into homeowners and their handy tips.
Plus, here are six first-time buyer schemes where you only need a deposit as low as 1%.
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