Is a rent to buy property the correct route for you?
As the economy continues to stagnate, the government is keen to get the housing market moving as much as it can. To this end, there are now numerous schemes that are aiming to help first-time buyers in particular get on the property ladder. The thinking behind this is that first-time buyers are the fuel for the rest of the market and without them able to buy, no one else can move up the ladder.
For potential house buyers in England, there are now four different government schemes that can help you on to the first rung of the ladder: Help to buy equity loans; shared ownership; NewBuy; and the recently announced Help to buy mortgage guarantees that don’t come into being until January 2014 and will be extended to more than just first-time buyers. Schemes in Scotland, Wales and Northern Ireland are similar but do check the details of the particular schemes available in your own region.
Help to Buy equity loan
A Help to Buy equity loan is available to buyers who can pay a 5 per cent deposit, get a standard mortgage for 75 per cent of the property’s value and the government will then loan you the remaining 20 per cent. You will own the property and will be required to start paying back the government’s loan after five years at a rate of 1.75 per cent of its value, which will then increase every year. You will also have to pay the loan off in full if you sell the property. Do be aware that you will have to pay the value of the original loan back, even if the property has dropped in value.
Shared ownership
Shared ownership, or rent to buy, is an increasingly popular option. Under this scheme, you buy between 25 and 75 per cent of a property, with a mortgage and deposit, then pay rent on the remainder, normally to a housing association. Do note that when you come to sell the property, the housing association will be given the first chance to buy it. This scheme is also only for households earning less than £60,000 a year.
NewBuy
NewBuy is a scheme that only applies to new build homes. If the builder of the development is registered with the NewBuy scheme, you can buy a property for as little as a 5 per cent deposit. However, you cannot combine the NewBuy scheme with Help to Buy or shared ownership schemes.
Help to Buy mortgage guarantees
Only announced in the recent 2013 budget, this is a new scheme that is not just aimed at first-time buyers and is not limited to new builds. It sees the government act as guarantor, allowing buyers to again purchase a property for just a 5 per cent deposit. Only recently announced, the scheme will only open on 1st January 2014.
Remember that with all these schemes, you will still be open to the unpredictability of the housing market and property prices in general so think carefully before taking on any kind of loan. More details on these schemes are available from the government’s online guide.
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