If you’re a buyer looking to take your first step on the property ladder, it can be challenging to round up the funds for a mortgage.

As such, many prospective purchasers are turning to alternative homebuying options, such as Shared Ownership and Help to Buy, to ascend the housing ladder. But what are they, and how do they benefit first-time buyers?

Here at Key Property Consultants, we take a closer look…

Shared Ownership

This scheme allows purchasers to buy a share of a home (between 25% and 75%) and pay rent on the remainder to a housing association.

Shared Ownership is available to first-time buyers, those in the process of selling, or those who have previously owned a home but have since sold. To be eligible for the scheme, the maximum household income must not exceed £90,000 in London (or £80,000 across the UK).

In terms of property type, the scheme is mostly available on purpose-built homes, including new-build properties, which are often part of larger developments in an area, and resale properties that are being sold by the current shared owner. Shared ownership homes are always leasehold.

One of the main benefits of buying through Shared Ownership is the deposit, as you only need to raise 5% of the share that you are buying, not on the full value of the property. So, if a property costs £500,000 and you purchase a 25% share – equating to £125,000 – then your 5% deposit would be £6,250.

Furthermore, if you choose to increase your owned shares (known as ‘staircasing’), then your monthly mortgage payments will increase and your rent will decrease – in most cases you can staircase up until the stage where you own 100% of your property. Once this happens, you will only pay your mortgage.

If you wish to sell your home, you can choose to do so at any time. Under the terms of your lease, your housing provider has a set period of time to try and find a buyer for your home first – typically eight weeks. If they do not find a buyer, you can opt to sell your home privately or through an estate agent.

Earlier this year, the government announced its plans for a new national model of Shared Ownership, where people can staircase up by 1% each time, rather than 10%.

Help to Buy

This is a government-backed scheme that enables buyers to purchase a home with the help of an equity loan, also known as shared equity.

Help to Buy is available in England only, with Scotland, Wales and Northern Ireland having similar but separate schemes.

Through Help to Buy, the government provides a loan of up to 20% of the home (and up to 40% in London), and the buyer only needs to raise a 5% deposit, with a 75% mortgage making up the rest. So, a 5% deposit of a home costing £500,000 would be £25,000.

Similar to Shared Ownership, the Help to Buy scheme is available to first-time buyers, those who have previously sold a home, or those who have sold their current property before or at the point of completion on their Help to Buy home. There is no maximum income cap for this scheme.

While the equity loan is only available on new-build homes, buyers cannot purchase a property that is on the market for more than £600,000.

What’s more, Help to Buy is interest-free for five years. During this time, you will only be required to make your mortgage payments and a monthly management fee of just £1. Once the five years are up, you will go on to pay an annual fee of 1.75% on the amount of the outstanding loan, but this amount will fluctuate with the value of your home.

You will have to pay back the Help to Buy equity loan when you sell your home or at the end of your mortgage period – whichever comes first. If you haven’t repaid the loan by this time, then the government will reclaim its percentage stake in your property at its current value.

It’s important to bear in mind, though, that the current equity loan will change from 2021, and the Help to Buy scheme is set to end in March 2023.

If you’re still unsure about which housing product is best for you, or you require some advice on buying your first home, our team at Key Property Consultants are happy to help.

Using our local knowledge and expertise, we can aid you to buy a home in South London, Croydon and parts of Kent. Please get in touch with us on 0203 793 2033 to find out more.

You can also request a free and instant online valuation to see how much your property could be worth on the current market.

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