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Added on: 27th September, 2017 by Nicola_20988
As property prices begin to rise, finding an affordable home can be a struggle, particularly if you are a first-time buyer.
Steve Taylor, residential property lawyer at Malcolm C Foy & Co in Doncaster and Rotherham looks at some of the financial schemes available to help first-time buyers get their feet onto the first rung of the property ladder.
Help to Buy equity loans
If you are buying a brand new property, you may qualify for a Help to Buy equity loan.
Under this scheme, the government will lend you up to 20 per cent of the purchase price of your new home. The property must cost less than £600,000, and you must contribute at least five per cent of the purchase price as a deposit. You can finance the balance with a mortgage.
You make your mortgage payments in the usual way. However, for the first five years you pay nothing towards the government loan. After that, it incurs a fee, fixed initially at 1.75 per cent, then linked to the rate of inflation.
The amount you must repay the government at the end of the loan term, or when you sell, will depend upon the market value of your home at that time.
Help to Buy mortgage guarantees
Unlike an equity loan, the Help to Buy mortgage guarantee scheme can also apply to older properties. It helps buyers who may not otherwise be able to provide the higher deposits lenders frequently now require.
Buyers provide a lower deposit, between 5 and 20 per cent of the purchase price, and borrow the balance from a participating lender. The government gives the lender an option to buy a guarantee for the loan.
The Help to Buy ISA
If you are saving towards your first home, consider a designated Help to Buy ISA.
These savings accounts earn interest at a rate set by the ISA provider. In addition, the government will give you a bonus of 25 per cent, up to a maximum of £3,000, when you use the funds to buy a qualifying property.
Shared ownership schemes
Shared ownership schemes are aimed at key workers on lower wages such as nurses and police officers, as well as over 55s and people with disabilities.
To qualify, you must not already own a property and your annual household income must not exceed a certain level. From April 2016, the limit increases to £80,000, or £90,000 in London. Individual schemes may have additional requirements.
Typically, you acquire a 25 to 75 per cent share in the property. For this, you must provide at least a 5 per cent deposit towards the purchase price, and take out a mortgage for the balance. In addition to making your mortgage repayments, you pay rent on the housing associationís retained share.
Shared ownership can offer some great opportunities for first-time buyers. However, the scheme requirements and restrictions can be complex, particularly when you come to sell. If you are thinking about buying a shared ownership property, it is a good idea to talk to a lawyer experienced in this type of property first.
Buying with the help of family
Increasingly, first-time buyers are turning to their family for help.
Parents may contribute directly towards the purchase price, through a gift or a loan. Alternatively, they may act as mortgage guarantors or use their savings to support a family offset mortgage.
However, it is important that you all take independent legal advice. This can avoid disputes arising later on, and ensure that those providing assistance know the risks involved. For example, if the borrower defaults, the mortgage lender may look to the guarantor to cover any shortfall.
Buying a home with family or friends
Joining with a friend, or family member, could allow you to buy a home you otherwise could not afford.
However, you should consider how to share any mortgage payments and, since you will both be jointly liable for the whole of the debt, how to make any agreement legally binding. You should also agree as to what will happen if one of you wants to sell the property, and how to divide the sale proceeds.
Your solicitor can prepare a deed of trust to record your agreement and protect your respective interests at the Land Registry.
If you have any questions about Help to Buy, shared ownership schemes, or if you are buying or selling a house, contact Steve Taylor, conveyancing solicitor in our residential property team.
T: 01302 340005
F: 01302 322283
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances. 11.10.16