In another article in this series for first time buyers, we have set out the basic types of mortgage available. This includes information on repayment vs interest only mortgages, as well as details on variable and fixed mortgages.
However, there are schemes specifically in place for those who are either struggling to save up for a deposit, though they can afford the monthly payments of a mortgage. Or, can only afford to buy a share of a property.
So, what are these schemes?
What is ‘Help to Buy’?
Help to Buy was introduced by the government to help those who could afford the monthly payments of a mortgage, but just couldn’t save enough for a deposit. It’s effectively a mortgage guarantee scheme that provides insurance to lenders to cover the next 15% of the value of a home if you put down a 5% deposit. In effect, the lender is getting comfort that 20% of the value of the property you are buying is protected, rather than just the 5% of your deposit. It’s not about giving you more comfort, it’s about giving your lender more comfort.
With Help to Buy, you still need to be looking at mortgages for a 95% LTV (loan to value). And it’s worth noting that only certain types of property are available on the scheme too.
Help to Buy, therefore, isn’t about making a mortgage cheaper for a first time buyer, it’s about making a mortgage more available.
If you think that Help to Buy is something you’d like to understand better, it’s best to discuss it with your adviser.
What is ‘Shared Ownership?
As the name suggests, when you buy a home on ‘shared ownership’ you’re not buying it all, only a share of it. The remaining portion is usually owned by a housing association.
A typical shared ownership arrangement would see you owning – and thus taking out a mortgage for – between 25% to 75% of the property, with rent being paid on the rest.
Because shared ownership schemes are usually set up and run by housing associations, each association will have its own way of doing things. There is no one size fits all. However, generally, the rule of thumb is that if you earn too much, you won’t be eligible for a shared ownership scheme. And equally so, if you earn too little the outcome is the same.
It’s important to note that when you come to sell a property in shared ownership, the housing association is likely to want to have a say in who is buying it.
If you think Shared Ownership is something you’d like to investigate further, then mention it to your adviser.
Other articles in this series written for first time buyers…