The Help to Buy Scheme
The Help to Buy Scheme is a way of opening the doors to owning your own home. It’s a shared equity scheme introduced by the Government, where first-time buyers can borrow up to 20% of the cost of a new build house. This borrowed money is interest free for five years to give the new homeowners the opportunity to move to a new house of their own even if they cannot quite afford the deposit. Despite this, there are several pros and cons attached to the Help To Buy scheme and it’s not always guaranteed it’ll be the best option for you. In our blog below, we discuss how applicable Help To Buy is for you, its advantages and disadvantages, and how important a RICS survey is to the scheme.
To qualify for a Help to Buy ISA you must:
- be 16 or over
- have a valid National Insurance number
- be a UK resident
- be a first time buyer, and not own a property anywhere in the world
- not have another active cash ISA in the same tax year: If you have opened a cash ISA this tax year, you can open a Help to Buy ISA but will have to take additional steps.
Do you qualify? Great! But before you make a final decision on the Help to Buy scheme, we recommend comparing it with your other options.
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Although there are no loan fees due in the first five years of Help to Buy, the amount you owe can still increase during that time due to the equity loan depending on the stability of the housing market. So, for instance if your house increases in value, so will the amount you owe. Even so, five years of interest free borrowing is a major selling point.
You will still need to make your monthly mortgage payments during the five years, but no interest will be added to your Help to Buy loan. The first five years of homeowning can be financially strenuous, so the breathing space that the Help to Buy scheme licenses is a fantastic advantage.
Despite this, the cost of fees could become a problem you will be forced to deal with further down the line. While you will only pay 1.75% in your sixth year, each year your loan fee will increase by 1% plus any RPI increase.
The Help to Buy scheme is only available for new build properties so depending on what house you want to move in to, this could be a limitation. If your intention was to buy a new build property, then Help To Buy is ideal but if not then we recommend considering other options.
However, a new build property may be worth it for the access to cheaper mortgage rates you’ll get due to you borrowing less overall to qualify for a mortgage in the first place.
After not paying interest on the equity loan for five years, the initial loan rate of interest – 1.75% in the sixth year – is quite generous in the current market and another fantastic advantage of Help To Buy. Yet, its unknown if the terms of a Help to Buy scheme might change. After all, a future government could review and change the terms of the scheme which is always something to be wary of.
Did you know that if you’ve used the Help to Buy scheme and are now in a position to remortgage your home and start repaying your loan, then you legally need to get a RICS regulated valuation?
The valuer must be RICS registered and independent to an estate agent and any valuations carried out for bank or mortgage purposes won’t be accepted. The valuation itself must inspect the property’s interior and exterior and the final report must be on headed paper, signed by a RICS surveyor, dated and addressed.
As part of the RICS valuation, the valuer must provide at least 3 comparable properties and their sale prices with regards to property type, size, and age, and must be within a 2 mile radius of the home being valued.
We can carry out Help to Buy valuations and offer any advice you may need. Avery & Co. are happy to guide you through what is potentially a very stressful process and walk you through it with as little stress, upset or confusion as possible. Please do get in touch, we would be happy to help.
