If you are a first time buyer who can afford potential mortgage payments but are finding it difficult to get the deposit together in order to have your mortgage application accepted, then there are government schemes which can help you get your foot on the property ladder with a much smaller deposit than is usually necessary. These are called the Help to Buy schemes.
Different Types of Help to Buy Schemes
There are different kinds of schemes, with the main two described in more detail below. There is also the new Help to Buy ISA scheme which will be available to first time buyers only from December 1st, 2015. In basic terms, it is a cash boost for any individual trying to get a deposit together in order to get a mortgage. The government will add 25% on top of whatever you have managed to save already, allowing you to apply for a mortgage or negotiate for a better rate on the mortgage you have already identified.
Help to Buy #1 – Equity Loan
The first scheme allows you to buy a new build property with a smaller than usual deposit. This particular version of the scheme is only available for homes being newly constructed that cost up to £600,000 or less (apart from in Scotland, where the maximum price and other details differ from the rest of the UK). You will need just 5% of the overall price as a deposit, with the government providing you with an interest free loan of 20% of the house’s price, leaving you with a mortgage on the remaining 75%.
In addition to the loan itself, you will get cheaper rates thanks to only borrowing 75% from the mortgage lender, instead of the 95% you would need to borrow without the Help to Buy scheme. The government loan also remains interest free for the first five years, with an interest rate of 1.75% beginning in the sixth year.
Help to Buy #2 – Mortgage Guarantee
The second Help to Buy scheme is intended to encourage mortgage lenders to be more willing to lend to people who don’t have enough money for the usual 20% deposit, but do have sufficient incomes to comfortably make their payments. This kind of scheme is available on all types of property instead of just newly constructed houses. Again, you’ll still need at least 5% of the purchase price for the deposit on any property worth up to £600,000.
This scheme works out well for mortgage lenders as the government is pretty much providing an insurance policy for the lender. The lenders end up taking the same risk as if you had provided the full 20% deposit, so they are more willing and able to provide these kinds of loans, even though you are only fronting 5% yourself.
Both schemes can be a great help to first time buyers and even others who are looking to move up the property ladder. Find out more information at the government’s Affordable Homes Ownership Schemes website and see which scheme will benefit you the best.