The Government have, at long last, made first time buyers a top priority. The Help to Buy scheme is going from strength to strength, the Help to Buy: ISA is launching soon and the Starter Home scheme is their latest programme – all of which are designed to help ftbs buy their first home
Help to Buy
This popular equity loan scheme allows homebuyers to buy a brand new property with just a 5% deposit. Buyers receive an interest-free equity loan, for five years, of up to 20% of the value of the property, which then provides them with access to more affordable 75% loan to value interest rates. So this means lower monthly mortgage repayments as well as low upfront costs.
The thought of a loan, which is interest free, might sound rather scary and could put people off, but the equity loan offered under the Help to Buy scheme is interest free for five years. After five years, this increases year on year by a fee calculated at 1.75% of the equity loan, plus 1%. It is a good idea to pay it back as soon as possible, or when you sell the property, as the loan is still cheaper than most mortgages – which are essentially loans, anyway. The scheme is open to any homebuyer looking to buy a property up to the value of £600,000.
Example of how it works
- Up to 30 June 2015, 56,402 properties were bought with the support of the Help to Buy equity loan scheme
- The majority of sales were to first time buyers (46,113, representing 82% of total sales)
- The average purchase price was £216,030
Help to Buy: ISA
See infographic below
The Help to Buy: ISA will be available through banks and building societies from December and is a tax-free savings account, like a normal cash ISA, but with one main difference – the Government will top up the money saved in the account by 25%, up to the value of £50 a month, and up to a maximum total bonus of £3000. To claim the £3000 maximum, you will need to save £200 a month into your Help to Buy: ISA for five years. For basic rate taxpayers, this will be equivalent to saving completely free of tax. You and your partner can open separate Help to Buy: ISA accounts, which will double the amount of your bonus, if you are both able to contribute £200 into your accounts each month.
- You have to be a first time buyer to be eligible, so, if you or your partner has ever owned a home before, you will not be able to open a Help to Buy: ISA
- You can make an initial deposit of up to £1000, meaning a head start of £250 from the Government towards the £3000 maximum limit*
*You cannot put money into a Help to Buy: ISA and regular cash ISA in the same year. This means that, if you have opened, or put money into a cash ISA since April 6th 2015, or if you do so before the scheme is introduced, you will have to wait until the 2016 tax year to open one of the new accounts.
- The bonus only appears when you buy your first property as it goes straight to the mortgage lender
- The Government top-up never stays in your ISA
- You can only use the bonus on a property worth £250,000 or less outside London, or a maximum of £450,000 in London
- Interest rates will vary from bank to bank, so it is advisable to shop around