Help to Buy Mortgage
The governments Help to Buy scheme enables you to purchase a new build property and receive a 5-year interest free loan of up to 40% in London (maximum loan £240,000) and 20% outside London (maximum loan £120,000). The scheme is designed to help people get on, or move up, the property ladder with a small deposit. It is also helping the government in its target to build more new homes.
The minimum amount of money you need to personally fund is at least a 5% deposit. The remainder of the money needed to complete the purchase can potentially be borrowed from a traditional mortgage lender, which is how Medifinance Mortgages can help. The Help to Buy scheme is not available for second-hand property purchases. The scheme is open to everybody providing it is your main residence and your only property i.e. it is not just for first-time buyers. One limitation is the maximum property value you can buy is £600,000.
The scheme is attractive as the equity loan from the government is completely interest-free for the first 5-years. This is likely to save you a significant amount of mortgage interest during this period. As well as having an interest free equity loan from the government for 5 years, the rate that you will pay on your mortgage can also be very competitive. If you were to buy a property with a 5% deposit not using the Help to Buy Scheme you would find mortgage rates on offer were significantly worse than available through Help to Buy Lenders.
It is important to note that whatever percentage you borrow from the government they will own that percentage as a share of equity in your property. This means if your property increases in value then the governments share increases and so does the amount you would need to pay to buy the government out if you choose to do this in the future. Conversely if the property decreases in value then you would need to pay less than the amount the government originally loaned you to buy them out. As part of the property is funded by Help to Buy, they will also insist that you reside in the property and in most scenarios you will be unable to let it out in the future without repaying this equity.
When deciding if Help to Buy is the right option for yourself, you need to balance the disadvantage of the government owning a stake & the limitations they impose versus the interest-free period, the potential lower mortgage interest rates and ability to increase your purchasing power. There are other pros and cons that one of our brokers, who have a deep understanding of the Help to Buy scheme, can discuss with you.
You may also be wondering what happens at the end of 5years. Assuming you haven’t bought the government out then the zero percent interest rate would move to 1.75% initially and rise each year after that by Retail Price Increase (RPI) plus 1%. It is also worth considering what you think property prices will increase by over that period if you plan to buy back the governments share before moving on to the revised interest-rate as rapid rises/decreases may impact your ability to do that.
There are two main ways you can buy the government out. By using cash that you have accumulated/inherited or by remortgaging to a higher Loan to Value assuming you have the earnings to support doing this in the future. Many healthcare professionals are paid on a defined pay scale and therefore this may give you the confidence that you will be able to buy the government out by this method assuming the property doesn’t significantly change in value.
You are able to buy the government out via a method called ‘staircasing’ and you don’t need to buy them out in full all at once. A minimum stake of 10% has to be bought each time and you will need to pay a management fee to do this.
If you are considering buying a house via the Help to Buy scheme it can seem quite daunting, but our advisers will be able to explain all the pros and cons. You will then have the understanding you need to make an informed decision as whether it is right for you.
As part of this process we can prepare illustrations, so you understand the monthly costs and also compare it with purchasing a property without using the scheme.
New Build Mortgages
If you are considering purchasing a newly built home, there can be different challenges to face compared with buying a second-hand property. These can include;
- Time pressure to exchange contracts - We have access to the whole of the mortgage market so if you are under pressure to meet a tight deadline to exchange contracts we can help you find lenders that are able to meet this deadline. As part of our service we can keep all parties updated with the progress of the application taking away the stress for you.
- Needing to re-new your mortgage offer - The length of a mortgage offer can vary depending on the lender. With new builds there can sometimes be a long period from exchange to completion. Lenders offers tend to range from 3 to 9 months, so we can ensure you have an appropriate lender for your circumstances.
- High Loan to Value – lenders will often cap the loan to value on a new build property, and sometimes this can be as low as 75%. With our help and expertise, we can help you find a lender that will potential lend up to 90% loan to value.
- Understanding special schemes available to you – whether it is Help to Buy, Shared Ownership or a builder’s deposit, we can help you understand which is best for you and what impact this may have on the mortgage.
- Sub-sale – sometimes you may be purchasing a property from somebody who committed to buying the property off plan and has now decided to sell instead of completing the purchase. This is called a sub-sale and not every lender will support this type of sale. We can help find you an appropriate lender who will look at the price you are purchasing at and not the price the original vendor agreed with the developer.
Our new build mortgage experts can help with all of the above and more, ensuring you find the lender most likely to be able to help you as well as secure the best mortgage deal for your needs.
Shared Ownership can be a great way to get on the property ladder and can help you buy a stake in a more expensive home than you could have otherwise afforded. Shared Ownership is a government scheme which was designed to assist lower income households and first-time buyers purchase a property. You can take out a mortgage for the share you own (usually between 25% and 75%), while paying rent (at below market rates) on the other proportion which will be owned by a local housing association or local authority landlord.
You may be eligible to buy a home through a shared ownership scheme if your household income is £80,000 or less (£90,000 in London). You will also need to be either a first-time buyer or a previous homeowner who cannot afford to buy a 100% share of a property now.
The amount of rent, and other property costs, you pay for the proportion of the property you do not own will have an impact on how much you can borrow. Before reviewing your mortgage options, we can help ensure you meet the Shared Ownership affordability criteria for the property you have in mind. If you pass this stage, we can then assist with finding a mortgage to fund the share you want to purchase (minus any deposit you choose to make). The rental costs can vary by property so it is vital you get a good understanding of what you can afford and factor in your likely costs.
If you would like to buy additional shares in the property in the future, then this is possible via a method called ‘staircasing’. Staircasing enables you to buy additional shares (typically a minimum of 10%) up to three times whilst you own your share of the property. You will need to pay a valuation fee each time you want to do this.
It is also worth being aware that you will be responsible for 100% of the maintenance costs no matter what proportion you own and that you will not own the property outright until you have bought 100% of the shares.
We will take the time to talk you through all the pros and cons to help you decide whether Shared Ownership is something that is right for you.