With property prices continually on the rise, it can seem like a daunting task for first time buyers of generation rent to get on the property ladder. A recent study of young homeowners indicated that a large percentage had only been able to buy their home due to financial help from parents/family.
Recently, the government has launched schemes that aim to help first time buyers secure a home by encouraging lenders to take a lower deposit, or by issuing government backed equity loans on new build properties. If you’re looking to buy but aren’t sure what your options are, read on.
Help to Buy
This is a government scheme for first-time buyers. It provides a loan, called an equity loan, that you put towards the cost of buying a new build. The scheme is not applicable for properties that have been lived in before or properties that have been converted.
If you’re eligible for an equity loan, you can borrow up to 20% (40% if you’re in London) of the market value of a new build.
You can only apply for an equity loan if you reserve a new build from any of the homebuilders registered with the Help to Buy scheme.
95% Mortgage Scheme
Following the latest Budget announcement, lenders are now starting to offer 95% loan to value mortgages as part of the government backed scheme. This means that as a first time buyer, you will only have to secure a 5% deposit with participating lenders.
One of the main reasons first time buyers are struggling to get on the market is having to save for a deposit and the upfront costs of moving such as stamp duty land tax and solicitor’s fees.
With the new government schemes and stamp duty tax breaks available for first time buyers, securing your first home is becoming a more achievable goal, even despite the increasing property prices.
Some lenders such has Halifax have suggested that this product will not be available for new build properties, so it’s a good idea to check with your lender before making an offer on any properties.
Of course, these schemes are designed to make it easier for first time buyers, not cheaper. The Help to Buy scheme is offered interest free on what you borrow for the first five years, however, this should not be seen as a price reduction/discount as you will end up paying back the same amount regardless of the scheme.
Likewise with the 95% mortgage scheme – for lenders to be able to offer this, there are usually higher interest rates (somewhere around 4% fixed fee for the first two years), so it’s vital that whatever you arrange is within your affordability.
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