Tag Archives: Help-to-Buy

Help-to-Buy Right-to-Buy

Help-to-Buy Right-to-Buy

The Basics:

  • Right to Buy allows most tenants in council housing to buy their home at a discount
  • You can benefit from a discount of up to £77,900 (or £103,900 in London areas) on the market value of the property
  • This size of discount depends on;
    • how long you have been a tenant with a public sector landlord
    • Type of property (flat or house)
    • The value of your property
  • The right-to-buy can be made in a joint application with someone who shares your tenancy and/or with up to three family who have lived with you for the past twelve months (even if they do not share tenancy)

Eligibility:

  • Buyer must have lived in the property for at least three years as a public sector tenant
  • The house or flat you wish to buy must be self-contained and your only principal home
  • If you were previously a tenant of a local authority which have now transferred ownership the property to another authority you may have a preserved right to buy, but you must have been living in the property when it was transferred

Pros

  • Gives the opportunity for long term council house tenants to buy their home with significant discounts on the purchase price
  • An excellent opportunity to move out of rent onto the property ladder where owners can benefit from rising house prices
  • Even if you have previously lived in and moved back into a public sector tenancy you can benefit from right to buy
  • Right-to-Buy discounts can be used more than once by one buyer on different properties

Cons

  • If you sell the property within five years you must pay back an amount of the given discount back (after five years, no repayment is required)
  • When selling, the previous landlord gets first refusal to purchase the property if you decide to sell in the first ten years
  • If the landlord has spent money on improving or maintaining the property in anyway the discount will be reduced
  • Purchasers will have to pay service charges in some properties which are put toward maintenance of communal areas etc
  • Buyers (unless cash buyers) will still need a mortgage which come with all the normal costs and may not be able to obtain a loan for the full amount you require
  • Buyers will also be liable for additional costs of owning a home such as; water and electricity bills which may or may not have already been a part of the tenancy agreement

Conclusion: This scheme is a fantastic opportunity for public sector tenants to get onto the property ladder and potentially reduce the long term costs of housing as well as purchasing a potentially appreciating asset. If you do not plan to live in the property in the short term (less than five years) it may not be worth your while with having to pay back the discount as well as having to pay the costs relating to the purchase of the property. Purchasers must also be aware of their own personal financial situation and whether they can afford the costs that come with home ownership, such as; mortgages and utility bills. As a final remark this is a very general overview of the Right-to-Buy scheme meant to give anyone interested the key facts, the government has an extensive document relating to all the aspects of this scheme in detail and can be found at: https://righttobuy.gov.uk

Help-to-Buy Mortgage Guarantee

help-to-buy-mortgage-guaranteeThe Basics:

  • Works in the exact same way as a normal mortgage other than the fact that the government will guarantee your mortgage to the lenders
  • Because of this guarantee lenders taking part can offer buyers higher mortgage loan values allowing purchasers to buy with lower deposit values
  • This means houses can be bought with deposits as small as 5% of the total value, the buyers will, however, still have to take out a 95% mortgage which must be paid as normal to the lender

 

Eligibility:

  • Buyer can be a first time or house mover
  • The buyers cannot own any other property nationally or internationally
  • Property cannot be bought through shared ownership
  • The house cannot be bought with assistance with any other government backed Help-to-Buy scheme with the exception of the Help-to-Buy ISA
  • The size of the mortgage cannot be more than 5 times your income
  • Property must:
    • Not be worth more than £600,000
    • Be rented out after the purchase
    • Be purchased with a repayment mortgage (not an interest only)
  • This scheme will cease to exist after the 31st of December 2016

 

Pros

  • Most helpful for buyers who want to move up or get on to the property ladder but cannot afford to save a larger deposit
  • The guarantee does not require any extra funds from buyer the government will simply pay out a sum to help cover the losses of lenders in the event of a default on mortgage repayments

 

Cons

  • Buyers are still responsible for mortgage repayments and as such will have to prove they can afford high loan-to-value mortgage
  • The guarantee does not cover any losses suffered by buyers in the event of a default or foreclosure
  • The guarantee ends after seven years; this is the point of research shows the chances of default drop and most buyers own around 20% of their property

 

Conclusion: An excellent opportunity for many first time buyers as well as home movers to move on to or up the property ladder but do not have the time or capital to afford a large enough deposit. It is important buyers have an appropriate income to be able to afford the loan payments. Please note is that this scheme does not offer any funds to buyers but will be able to help buyers with small deposits to secure mortgages.

Help-to-Buy Mortgage Guarantee
Help-to-Buy Equity Loan

Help-to-Buy Equity Loan

help-to-buy-equity-loansThe Basics:

  • For both first time buyers and home movers looking to purchase a newly built property which is worth at a maximum £600,000
  • The government will lend up to 20% (40% if buying in London) of the cost of the new home and the purchasers must put in a minimum 5% deposit
  • Purchasers will therefore have to find the rest of the mortgage themselves, meaning a house worth £600,000 will only need a £450,000 mortgage rather than £570,000 mortgage
  • The government loan will charge a £1 monthly management fee and will not charge interest for the first five years
  • In year six you will have to start paying 75% of the original loan’s value with inflation added on top – these repayments do not go towards paying off the capital supplied by the government
  • The loan can be paid off in lump sums at any time or will be taken off the value of any future sale of the purchased property or will the purchasers will be required to pay back the sum in full after 25 years

Eligibility:

  • Must be a first time buyer or home mover, you will not be able to sublet this home or enter a part exchange deal on your old home
  • The property must be a new build from participating builders and have a maximum value of £600,000
  • A minimum 5% deposit is required and you must be eligible for a standard mortgage from a participating Help-to-Buy lender
  • This home must be your only residence; you cannot own or part-own any other residential property
  • This particular scheme is only available in England. The Scottish, Welsh and Northern Ireland governments run similar schemes

Pros

  • This scheme offers potentially thousands of pounds’ worth of money to be used for a deposit and help secure mortgages for buyers looking to up size significantly which previously otherwise would not have been possible
  • For the first five years this scheme is a very cheap way of securing cash for a house purchase
  • Many companies currently in the construction of new builds will offer purchasers to get involved before the final completion of the build, this is an excellent opportunity for purchasers to have a say in the design and style of their new home

Cons

  • This scheme must be used in conjunction with participating Help-to-Buy builders and lenders
  • Holding the equity loan for more than five years can become an expensive option
  • The equity loan must be paid back in full at some point either when a sell takes place or in 25 years after purchase
  • As an equity loan the government technically owns whatever % of the house which they pay towards, therefore when the time to pay back the capital comes the government will take back their original input and an additional amount depending on how much the property rises in value – e.g. if there is a 10% increase in the property value the government will take back their initial loan value plus 2% extra (if you used the whole 20% available)
  • The interest payments after five years do not go toward paying off the government loan but are additional payments which increase in cost over time due to inflation

Conclusion: For those desperate to move in to a new build house but lack the funds this is the perfect scheme to enable this. However, it could end up costing purchasers a quite hefty amount in the long run and therefore it may not be suitable for those who know in five years’ time they will not be able to afford the loan fees charged. Additionally, buyers must be aware that this loan must be paid back at some point with the addition of some part of the increase in value of the property.