More than ever, young homebuyers require help from government assisted home ownership schemes to buy their first property. We share more information about some of the help to buy schemes which are available to those looking to purchase their first home.

House affordability

The ONS has released its latest new housing purchase affordability data. And it shows affordability ratios in England are worse than at any point since the series began in 1999. In the financial year ending 31 March 2021, the average home sold in England cost the equivalent of 8.7 times the average annual disposable household income. With this in mind, it is becoming increasingly difficult for first-time buyers to get their foot on the property ladder.

Help to Buy ISA

You can no longer open a Help to Buy ISA. But if you are fortunate enough to have already opened one, this is a great way to get additional funds. All based on your savings. You can pay up to £200 into your ISA each month. The government will top up your savings by 25% (up to £3,000) when you buy your first home. If you are buying with someone who also has a Help to Buy ISA, both of you will get the 25% bonus.

If you are currently paying into a Help to Buy ISA, you should be aware that you can only pay into the ISA until November 2029. And the 25% bonus is only valid to claim until November 2030. The bonus is only valid for properties that have a purchase price of up to £250,000 (or up to £450,000 in London). It must be the only home you own and be where you intend to make your permanent residence. You do not have to pay it back, making the account very attractive for first-time buyers!

Lifetime ISA

If you were not able to open a Help to Buy ISA prior to the government stopping these accounts, you do not need to worry. You can use a Lifetime ISA (or LISA) to buy your first home or save for later life. You must be 18 or over but under 40 to open a LISA. You can put in up to £4,000 each year until you’re 50 and you must make your first payment into your LISA before you’re 40. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.

You can use your savings to help you buy your first home if all the following apply.
The property costs £450,000 or less.
You buy the property at least 12 months after you make your first payment into the LISA.
You use a conveyancer or solicitor to act for you in the purchase – the ISA provider will pay the funds directly to them.
You buy your home with a mortgage.

If the person you’re buying with has a Lifetime ISA, they can use their savings and government bonus too. They’ll pay a 25% withdrawal charge to use their Lifetime ISA savings if they own or have a legal interest in the property (for example, they’re a beneficiary of a trust that includes property).

If you have a LISA and a Help to Buy ISA, you can only use the government bonus from one of them to buy your first home. You can transfer money from a Help to Buy ISA to a Lifetime ISA. If you transfer money from a Lifetime ISA to a Help to Buy ISA you’ll have to pay the 25% withdrawal charge.

Help to Buy: Equity Loan

Home ownership can be achieved with an equity loan from the government. This loan will only go  towards the cost of buying a new-build home as a first-time buyer.
However, the Help to Buy: Equity Loan scheme is due to end soon. It will close to new applications at 6 pm on 31st October 2022.

For this scheme, you must pay a minimum deposit of 5% of the property purchase price and arrange a repayment mortgage of at least 25% of the property purchase price. You can then borrow an equity loan to cover from 5% and up to 20% of the property purchase price of your newly built home.

The equity loan percentage you borrow is used to calculate your interest and equity loan repayments. You do not have to pay interest for the first 5 years. In the sixth year, you’ll be charged interest at a rate of 1.75%. This will be applied to the equity loan amount you originally borrowed (the equity loan percentage of the property purchase price). This annual interest is spread over the year in monthly payments. The interest rate increases every year in April, by adding the Consumer Price Index (CPI) plus 2%. Your interest payments will decrease if you make a part repayment of the equity loan. This is because the amount the interest rate is applied to will reduce.

Eligibility for the Help to Buy: Equity Loan

You must be:
•           At least 18 years of age
•           A first-time buyer
•           Able to afford the fees and interest payments, along with the mortgage repayments.

You cannot get the equity loan if you have ever:
•           Owned a home or residential land in the UK or abroad
•           Had any form of sharia mortgage finance
•           You can apply on your own or with other people and all applicants must meet the eligibility criteria.

If you’re married, in a civil partnership, or cohabiting with your partner (and you plan on continuing to live together), you must make a joint application.

The property you buy with your equity loan

The property must be:
•           A new-build home
•           Sold by a Help to Buy registered homebuilder/developer
•           The only home you own and live in
•           It must not have been lived in by anyone before you buy it.

You should also be aware that there is a maximum property purchase price limit for the home you buy depending on which region it is in. More information can be found about this on the government website.

Shared Ownership Homes

Shared ownership is an ideal scheme if you are unable to afford a deposit and mortgage on a home that meets your needs. In this scheme, you buy a share of the property and pay rent to a landlord on the rest.

When you buy a home through shared ownership, you typically buy a share between 10% and 75% of the home’s full market value and pay rent to the landlord for the share they own. It is important to note that you will usually be required to pay monthly ground rent and service charges, for example towards the maintenance of communal areas.

Buying Your Share

The share you can buy is usually between 25% and 75%, however, you can buy a 10% share on some homes. You can take out a mortgage to buy your share or pay for it with savings. You’ll also need to pay a deposit, usually between 5% and 10% of the share you’re buying.

It is possible to purchase more shares of your home in the future. This is known as ‘staircasing’. If you buy more shares, you’ll pay less rent. However, this could mean a higher mortgage is needed if you are unable to purchase the additional shares in cash. The amount of rent you pay will vary depending on the value of the property and the size of the landlord’s share.

Homes you can buy through the shared ownership scheme

• A new-build home
• An existing home through a shared ownership resale scheme
• A home that meets your specific needs, if you have a long-term disability
• Shared ownership homes are offered by housing associations, local councils, and other organisations. They are called ‘providers’ or the landlord.

All shared ownership homes (houses and flats) are leasehold properties.

If you are finding it difficult to afford your first home, then take a look at the government assisted home ownership schemes. They might just make the difference and help you get on the property ladder. For more advice or help buying property in Altrincham, and the surrounding areas, contact our professional team today.