First time buyers - what you need to know
- AuthorAshlea Thornton
First Time Buyers
You will never be in a better position to purchase a property then when you are a first time buyer. Whilst your budget might be smaller than it is for future home purchase, you are eligible for the best mortgage rates with lenders often incentivised with handy “cash back” offers to help you buy the things you need to get settled.
Not only that, but you are more appealing to the sellers of your dream property as you come without a chain behind you and so can move much quicker than potential purchasers who are already home owners.
But, these are not the only benefits to being a first time buyer and many of the benefits are unknown to the majority. If you are thinking of buying or home, or even if you aren’t but know you will in the future, then you should think carefully about how best to capitalise on this opportunity and naturally, this comes down to money.
Buying a property is an expensive process and saving for a deposit, not to mention all of the additional costs (for more information on this click here), can seem impossible. Most lenders require a minimum 10 percent deposit from borrowers, however some lenders are now offering 95% mortgages.
The government have therefore put in place a number of schemes to help you have the biggest deposit available to you when you do decide to step on to the property ladder. Our handy guide explains the benefits of the schemes, and downsides, below:
Help To Buy – Equity Loans
Announced in the 2013 budget this innovative scheme was described as the biggest intervention to the housing market by the government since the Right to Buy scheme of the 1980s.
Granting first time buyers the option of putting down just a 5% deposit on a property, the government provide an equity loan of up to 20% of the purchase price (increased to 40% for London). What this means is that for a relatively small deposit, you are able to purchase a property which may have otherwise been out of your price range. It also means that with only a 75% mortgage required, you are able to take advantage of better mortgage rates, because as the loan to value rate decreases, so does the interest amount. What this means to you, is lower monthly repayments.
The catch here is that it is only available on new build properties built by registered Help to Buy builders, so if your dream home is a period property this is not the scheme for you. Additionally, the property must be below £600,000 in England and £300,000 in Wales.
You will have to pay fees on the loan provided to you by the government, but this won’t be for the first five years of the loan. The fee begins at 1.75% in the 6th year of the loan, and increases in accordance with the Retail Prices Index each year plus a further 1% so you need to be careful that you will be able to afford these fees on top of your mortgage repayments once year six hits.
The loan must have been repaid by the either the 25th year or when you sell the property, depending on which comes first. Please be aware that if you repay the loan when you sell the property then the amount you owe will fluctuate depending on the sale price of the property as the government will simply take 20% of this, meaning that if you make a healthy profit on the property so do they.
Help to Buy – ISAs
If you are thinking long term and only just beginning to save for your property, then this is the option for you. By saving in a government approved ISA scheme (most major banks have them), the government will top up your deposit by up to 25%, up to a limit of £3,000. This doesn’t need to be paid back and what’s more, this scheme can be used in conjunction with the equity loan option.
After opening your ISA, you can make an initial payment of up to £1,200 followed by monthly payments of up to £200. When you then come to purchase your property, your advisor will apply for your interest payment and this will be sent the following day.
The only criteria for this is that the property you are purchasing isn’t worth more than £250,000 (increased to £450,000 in London), the ISA bonus is being used solely towards the house purchase and you intend to live in the property.
Whichever scheme you choose, at Fieldings Porter our conveyancing team are well practised in dealing with the requirements of government in ensuring that all of the paperwork is correctly drawn up and the money you need is available for completion day. If you are thinking of buying, or simply what to talk through the logistics of purchasing a property having taken advantage of the schemes, please do contact me or one of our team.