The Sunday Times
Monday March 25, 2019

Struggling to get a foot on (or up) the property ladder? Here's our simple round-up of government schemes that could provide just the boost you need.

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  • Being a first-time buyer can often mean paying rent, saving for a deposit and playing catch-up with house prices all at the same time – no easy feat.  

    But there's good news too.

    As well as a stamp duty exemption on the first £300,000 on all homes worth up to £500,000, the Government offers a range of schemes all designed to offer a leg-up to the first (or next) rung of the housing ladder.

    Here's a round-up of each scheme and how it works.

    Help to Buy 

    Help to Buy offers a boost to purchasers who can only raise a 5% deposit.

    While the scheme is not limited to first-time buyers, the vast majority of applicants (81% according to Government figures) fall into this category.

    When Help to Buy was launched back in 2013, there were two parts to the scheme; Equity Loan and Mortgage Guarantee.

    As scheduled, the Mortgage Guarantee (where the Government offered a guarantee to mortgage lenders to encourage larger loans) was scrapped at the end of 2016.

    Help to Buy Equity Loan

    The part of Help to Buy still available is the Equity Loan.

    The scheme requires a minimum 5% deposit of the property value, with the Government offering an interest-free loan of a further 20%. The remaining 75% is covered by a standard mortgage.

    Mortgages in conjunction with Help to Buy are offered by most major lenders including Santander, Barclays and Halifax, as well as some smaller building societies such as Teachers and Newbury.

    On a £200,000 property, you'd need a minimum deposit of £10,000 and the means to qualify for a mortgage of £150,000. The Government would then plug the gap with an equity loan of £40,000.

    This is how the £40,000 equity loan works:

    • There is no interest to pay for the first 5 years 
    • In year 6, interest (known as a 'loan fee') kicks in at 1.75% 
    • The rate increases every year thereafter at the RPI (retail prices index) measure of inflation plus 1%

    You can opt to pay fees in a single annual payment or by monthly direct debit. But these are fees only and will not go towards repaying the equity loan.

    The idea with the Help to Buy Equity Loan is that, because you're theoretically only borrowing 75% from the mortgage lender, rates will be cheaper than on a 95% mortgage.

    However, just like with the now-archived Mortgage Guarantee, don't assume this is always the case. Make sure you compare mortgage deals, either on a comparison website or using a broker.

    When you come to sell your home (or at the end of the 25-year mortgage term if you decide to stay put), the Government will take back its 20% share whether that's profit or loss.

    You can opt to repay the loan at any time during the first 25 years but only in minimum 10% increments of the property's current market value.

    The Help to Buy Equity Loan is only available on new-build properties in England worth up to £600,000.

    The scheme will remain open until 2021. 

    • Help to Buy (Wales) offers a government equity loan worth up to 20%. It applies to new-build properties up to a maximum value of £300,000. The scheme closes in 2021.
    • There is no Help to Buy scheme in Northern Ireland.  

    If you're interested in buying a home under the Help to Buy scheme, start by contacting a Help to Buy agent in your chosen area.

    Help to Buy London

    Help to Buy London, which launched in February 2016, is a extension of the Help to Buy Equity Loan. It's aimed at people wanting to buy in London and Greater London where house prices can climb at notorious speeds.

    For a 5% deposit, the scheme offers the same 5-year interest-free loan against qualifying new-build homes. The difference with Help to Buy London is that the loan is worth up to 40% of the value of a home, compared to the maximum 20% under the scheme in the rest of England and Wales.

    Buying in the capital? Find out more about the scheme with our handy Q&A

    Help to Buy ISA

    The Help to Buy ISA, which launched in December 2015, is designed to boost first-time buyers' savings pots.

    For every £200 you save into the account, the Government will add £50. This is up to a maximum bonus of £3,000 (which would apply to £12,000 of savings). 

    It's important to note however that the Help to Buy ISA bonus cannot be put towards the initial deposit payable at exchange. Instead, the tax-free lump sum will be paid directly to the mortgage lender at completion.

    In other words, you'll have to save the initial deposit yourself and use the bonus to reduce the mortgage you need, and subsequent monthly repayments.

    There are other limitations too, such as a £250,000 price cap on property the bonus can be used to buy, rising to £450,000 in London.

    A Help to Buy ISA is a cash ISA, and you are only permitted to pay into one cash ISA in each tax year.

    However, you will be able to use your Help to Buy ISA savings in conjunction with any other Government scheme such as Help to Buy or Shared Ownership.

    Banks and building societies offer their own Help to Buy ISAs and interest rates vary so be sure to shop around.  

    Some accounts incorporate an upfront bonus that falls away after an initial 'honeymoon' period, which is something to watch when saving over the long term.

    Is a Help to Buy ISA for you? Check out our handy Help to Buy ISA pros and cons.

    Lifetime ISA

    The Lifetime ISA offers a tax-free boost of up to £1,000 a year towards either buying your first home or saving towards retirement.

    Savers aged under 40 can open one of these accounts and put away up to £4,000 each year. The Government will then boost returns by 25p for every £1 saved and pay the bonus directly into the account. 

    Since April 2018, the bonus is paid monthly (before this date it was paid annually).

    You can opt to use your Lifetime ISA as a deposit on a property worth up to £450,000 anywhere in the UK, so long as you are a first-time buyer.

    You will be able to transfer your Help to Buy ISA balance into your Lifetime ISA without losing the tax-free benefits.

    Lifetime ISAs are slightly more complicated than Help to Buy ISAs as they will be available as either cash or stocks and shares. You can find out more with our Lowdown on Lifetime ISAs.

    Lower earner? Find out more about Help to Save which launched in April 2018.

    Starter Homes scheme

    The Starter Homes scheme was first announced by the Government in 2015.

    Homes built under the scheme will be available to buyers aged between 23 and 40 who don't own a property and have never previously owned one.

    The planned 200,000 new homes built under the scheme will be sold at a minimum discount of 20% of the market price.

    This discount is made possible by offering developers cheaper brownfield commercial land to build on and waiving taxes, according to the Government.

    There's a £250,000 price cap on homes available under the Starter Home scheme, rising to £450,000 in London.

    Starter Homes cannot be resold or rented at their open market value for at least 5 years after the initial sale.

    The first Starter Home completions had been earmarked for 2018 but, to date, none have been built. Thirty local authorities have signed up to the scheme however, including West Somerset, Liverpool and Luton. 

    You can register your interest in Starter Homes here.

    Shared Ownership 

    As it says on the tin, Shared Ownership schemes allow you to purchase just share of a home (between 25% and 75%) from a local Housing Association and pay an affordable rent on the part you don't own.

    Under a process known as 'staircasing' you'll then be given the chance to buy further chunks of the home as and when you can afford it, until you own 100%. 

    These chunks will be priced at the home's current market value as assessed by the relevant Housing Association.

    You will also have to pay a valuer's fee each time.

    To qualify for Shared Ownership, you don't have to be a first-time buyer but your household income must not exceed £80,000, or £90,000 in London.

    The scheme is available on both new-build and resale properties. You can find out more about Shared Ownership with our guide.

    Sound up your street? Register with a Help to Buy agent in your chosen area.

    Right to Buy

    Right to Buy enables council tenants with at least three years’ consecutive years tenancy (reduced from five years in May 2015) to potentially buy their home at a significant discount.

    You can find out if you are eligible for the scheme at the Government website.

    Council tenants (or those living in their homes when it was transferred to another landlord) will benefit from deeper discounts if they want to buy their property. 

    Maximum discounts currently stand at £80,900 in England or £108,000 in London. They increase at the start of each tax year in line with the CPI measure of inflation.

    Find out more about Right to Buy with our Q&A.

    Getting there without help

    It is still possible to get on the housing ladder with only a small deposit without a leg-up from these types of schemes.

    Mortgages that are not backed by the Government are available for deposits of between 5% and 10%. And some may even offer a better rate or terms for your personal circumstances.

    Always do your research and compare mortgages at different deposit levels. 

    Stamp duty

    Finally, don't forget to factor in stamp duty which is payable on all primary homes worth over £125,000.

    However, if you (and any other joint buyer/s) are non-homeowners and have never owned or part-owned a home previously (in any part of the world), the first £300,000 is exempt from stamp duty, up to a maximum value of £500,000.

    This means if the home costs £300,000 your stamp duty bill will be zero. If it costs £500,000, your stamp duty bill be be £10,000, opposed to the previous £15,000. The maximum saving available is £5,000.

    This handy calculator from HMRC will tell you what you'll need to pay.

    Find out if you qualify for a first-time buyer stamp-duty break here.

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