Getting on the property ladder isn’t easy these days, especially for first time buyers with fairly small deposits or those who do not have any or much equity built up in property that can be used as a deposit for an onward purchase. The good news is that the UK government are keen on stimulating the housing market and want to help people get that foot onto or up the ladder.
The Help to Buy scheme is an equity loan provided by the Government: secured by a second charge, in London they will lend you up to 40% of the cost of a new build home, outside of London this is capped at 20%. You will need a 5% deposit and a mortgage for the remaining 55% (in London) or 75% (outside of London). This means that you will have two loans when purchasing your house, the Help to Buy equity loan and a mortgage.
Helpfully, you will not be charged any interest on the equity loan for the first 5 years although a management fee of £1 per month is payable. Interest will be payable after the initial 5 year period has ended. Your mortgage repayments will start immediately and these are payable by direct debit to the bank who you took the mortgage with. However, the equity loan must be repaid after 25 years or earlier if you sell your home. Please be aware that the amount you will repay will be linked to the future value of your home at the time you sell it or pay off the equity loan. For example, if your house has gone up 10% in value, then the amount you must repay will be 10% higher than the original equity loan amount.
You do also have the opportunity to pay off or partially repay your equity loan without having to sell your property. This is known as “staircasing” and the minimum amount you can staircase each time is 10% of the market value of your property at the time you want to make the payment. You will need to instruct and pay a solicitor and an independent surveyor to carry out a valuation and the valuation will then need to be approved by the Help to Buy scheme. You can staircase in one of two ways, either by 1) paying the money yourself from your savings or from a gift or 2) by borrowing the money using another secured loan on your property, typically by taking extra money on your mortgage if approved by a lender. There is certain criteria that must be met in order to approve your staircasing and any potential additional borrowing, you should contact the Help to Buy scheme or a professional for further guidance in advance.
Tying all of the elements of Help to Buy together can be tricky, in particular the Help to Buy application and the mortgage application need to be in sync with both lending parties needing to know certain information about the other. We therefore recommend using an experienced mortgage broker to help with the process and we at Rhodes Advisory are very happy to help.
Lee is a Mortgage & Insurance Advisor and the Founder of Rhodes Advisory, he has over 13 years of experience in Financial Services. So far this year Lee has helped clients raise over £7m in mortgages. His company is an appointed representative of Openwork, an award-winning financial advice network, giving him access to exclusive rates not found on the high street.
