If you are considering buying your first home, as a guide, you will need to save between 5 and 20% of the purchase price, so if you are looking to spend £125,000 to get your foot on the first rung of the property ladder, you will need a deposit of £6,250. The more deposit that you can save, the easier it will be for you to obtain a wider range of mortgages.
Set a target for the level of deposit that you are aiming for and budget to set funds aside regularly to hit that target.
If you have a 5% deposit, the Government Help to Buy Scheme could make either a new or existing home more affordable. Under the Help to Buy Scheme there are two options available to help first time buyers. These are: Equity Loans and Mortgage Guarantees.
Equity Loans are only available for those buyers who are acquiring a brand new home. You are able to borrow 20% of the purchase price, interest free, for the first 5 years providing you put down your 5% deposit saved.
Mortgage Guarantees are available for both brand new and second hand properties. The Government will basically underwrite any losses that your lender incurs if the mortgage is not repaid. The level of equity loans and mortgage guarantees are governed by limits which were set down by both schemes dependent upon where you live in the UK. Further advice can be given on this aspect.
In December 2015, Help to Buy ISAs were introduced and are specifically geared to help first time buyers regularly save for a deposit for their home. Any money put into the savings scheme will be topped up by 20% from the Government. So for every £200 you save, the Government will add a further £50!
The maximum the Government will contribute to your fund is £3,000 which means the most you can save within a Help to Buy ISA is £12,000. Similarly there is a minimum you can save to qualify which is £1,600. Help to Buy ISAs are available for each first time buyer so if you are buying a property with a Partner who is also a first time buyer, you can get a maximum contribution of £6,000 from the Government towards your deposit.
Shared ownership is a blend of renting and buying which is predominantly aimed at first time buyers. You can buy a share in a home from the Freeholder of that property which often is either a Local Authority or a Housing Association and you would pay a pro-rata element of rent on the part of the property that you don’t own. Shared ownership schemes have been put in place to help local residents who possibly don’t earn enough to own a property outright. Sometimes people over the age of 55 or possibly those who have a long term disability may also qualify to buy a property in shared ownership.
The share that can be acquired usually ranges from between 25 to 75% and you would need to take out a mortgage for that part of the property. Frequently, at a later stage, you will be given the opportunity to acquire additional equity in the property.
The Government is still pursuing a policy allowing Council Tenants a “right to buy” their Council home at a discounted rate. The level of discount depends upon the time that you have been a Council Tenant which can amount to as much as 50% of the perceived value of the property. Usually you will need to have rented from the Council for at least 3 years to qualify for a discount albeit that the 3 years need not necessarily be consecutive.
There are “Right to Acquire” schemes which are offered by Housing Associations in both England and Wales. The discounts under these circumstances are slightly smaller than Right to Buy but are nonetheless worthwhile.
You may be able to revert to a guarantor mortgage whereby parents, relatives or friends are prepared to underwrite the mortgage repayments in the event that you are unable to meet them.
Before you make arrangements of this kind, please be fully aware of all the risks which are associated with such arrangements. As the Guarantor you would be responsible for the loan if the home owner defaulted. Failure to make payments could impact not only the credit rating of the owner but also yourself as Guarantor.
Buying jointly with friends or family is becoming increasingly common as property values have risen dramatically over recent years.
The benefits are that you can share the expense of the deposit and thereafter mortgage repayments along with maintenance costs and general house bills.
Complications can arise in the future when one party wishes to sell and the other does not and/or when one party pays their appropriate contribution and the other one fails to do so. There may be merit in producing a legal document to cover shared responsibilities and commitments which should specifically deal with the mechanics for a sale should one party wish to sell and the other be less enthusiastic!
For further advice on any of the topics covered above, please do not hesitate to contact either of the offices of Lex Allan.