Even with News Outlets reporting that house prices are stagnant, many first time buyers (“FTBs”) still find themselves priced out of the property market. The government have realised this and set up various schemes to assist FTBs looking to get on the housing ladder.
1. Help to Buy Equity Loan (“H2B Loan”)
A H2B loan* may be an alternative to FTBs who have considered shared ownership. FTBs with a deposit covering 5% of the property value may obtain a H2B Loan for a further 20%. The H2B Loan should give FTBs a greater range of mortgage options as they only need to obtain a 75% mortgage.
Whilst FTBs will not pay any of the H2B Loan back until they sell/complete their mortgage term (whichever earlier), annual management fees are payable from the outset and interest accrues after 5 years.
It is important to note that FTBs do not pay back the initial loan amount but instead 20% of the property value at the point of repayment.
For example, FTBs can purchase a £200,000 property with a £10,000 deposit, £40,000 provided by way of the H2B Loan and £150,000 provided by way of mortgage. If, on the sale of the property/ end of the mortgage term, the property value has risen to £250,000, the H2B Loan repayment will be £50,000.
All FTBs, including those who benefit from the above, can also benefit from two ISAs which offer bonuses*.
2.1 H2B ISA
FTBs can deposit £3,400 into a H2B ISA in the first year and £2,400 thereafter knowing that they will not only receive competitive interest rates but also a 25% bonus (£3,000) on the first £12,000* deposited (cannot deposit more than £1,200 in the first month and £200pm thereafter).
If FTBs change their mind and do not want to use a H2B ISA, the money can be withdrawn without the bonus or, more importantly, a penalty.
2.2 Lifetime ISA (“LISA”)
FTBs looking at properties between £250,000 and £450,000 may consider the LISA more appropriate for their needs* as £4,000 can be deposited yearly with no monthly deposit limits, whilst benefiting from a 25% bonus (£1,000pa).
If FTBs are unsure on using the money for a property purchase they will, however, have to wait until they’re 60 years old before withdrawing or they face a 25% penalty on the money held in the account (deposit and bonus).
Furthermore, FTBs cannot benefit from both the H2B ISA and LISA bonuses, so chose carefully.
*Subject to eligibility criteria – figures may vary for purchases in London.